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Second Appeal No. 57 of 1960, decided on 22nd August 1962.

Objection rot raised at time of framing issue by consent of parties‑Cannot he allowed to be raised at appellate stage‑Evidence Act (I of 1872), S. 103.

Custom of trade‑Question of fact‑Finding cannot be disturbed except when it is unreasonable an d hosed on no evidence at all.

Mercantile usage‑Standard of proof‑Bank with which paper is deposited for collection‑Has no authority, in absence of instruction to accept anything but money as payment‑Bank to which draft is sent for collection ---Becomes personally liable if it accepts as payment cheque which proves worthless‑Contract Act (IX of 1872), S. 211.

Juggomohur Ghose v. Manickchund and Kaisreechund 7 M I A 263 , Gokal Chand‑Jagan Nath v. Firm of Nand Ram Drrs‑Atma Ram A I R 1938 P C 292 ; Federal Reserve Bank of Richmond v. D. J. Malloy U S S C R 617 and Michie on "Bank and Banking," Vol. 6, p. 33 ref.

Sayeed A. Shaikh for Appellant.

Naimuddin for Respondent.

Date of hearing: 22nd August 1962.

WAHIDUDDIN AHMED,

J.‑This is a second appeal by the defendants against the judgment of the learned 'Additional District Judge, Karachi, in Civil Appeal No. 29 of 1959. The learned Court by judgment dated the 23rd of November 1959, allowed the appeal and decreed the respondent's claim in the sum of Rs. 4,662‑14‑0.

2. This appeal arises out of Suit No. 205 of 1956 brought by the respondent against the appellant company for the recovery of Rs. 4,662‑14‑0 on the allegation that he had deposited with Australasia Bank Limited, the appellants, a bank draft for Rs. 4, 662‑14‑0 drawn in his favour by the Central Exchange Bank Limited, Lahore, on their branch at Karachi for collection.

The respondent alleged that the appellant bank instead of receiving cash for the draft, accepted a cheque dated the 9th of August 1951, drawn in their favour on the Grindlays Bank Limited. This cheque teas ultimately dishonoured as the Central Exchange Bank Limited suspended business and later on went into liquidation. This dishonoured cheque was returned .to the respondent who protested and claimed the amount of the draft from the appellant Bank. The case of the respondent before the Courts below was that the appellant accepted the cheque in their favour drawn on Grindlays Bank Ltd. at their own risk and 'responsibility, they should have realised the payment of the bank draft in cash, and since they failed to do so they were liable to compensate for the loss caused to him. Mr. Kazmi, the 4th Sub‑Judge, 1st Class, Karachi, dismissed the respondent's suit on the ground that the appellant bank acted in accordance with the, prevailing practice and there being no. instructions of the respondent to the contrary was justified in accepting the cheque in their name from the Central Exchange Bank, Karachi, on Grindlays Bank Limited, and here not guilty of any negligence in the discharge of their 'duties as agent.

3. On the other hand, the learned Additional District Judge came to the conclusion that the appellant bank had failed to establish that there was a general practice in Karachi that in draft drawn on non‑scheduled banks cheque should be accepted and not cashed ; which cheque subsequently should be sent to the scheduled bank for clearance. He further held that the appellant bank received the cheque from Grindlays Bank Ltd, drawn in their favour and not in. favour of the respondent, and if the said cheque is dishonoured it is the appellant bank which must suffer for it and they must make good the loss to the plaintiff/respondent.

4. Mr. Sayed A. Shaikh, the learned counsel for the appellant, has attached the judgment of the first appellate Court on three‑fold grounds. Firstly, that the onus of establishing that the appellant bank acted against any custom of trade was on the respondent, which they have failed to discharge; secondly, that the evidence produced on the record establishes beyond doubt that there was a trade custom amongst bankers at Karachi while collecting payment from non‑clearing banks to accept cheques on non‑clearing banks and to send them to the clearing house ; and thirdly, that the respondent has not been able to prove negligence of the appellants in the discharge of their duties.

5. None of these contentions has impressed us. So far, as the question of onus with regard to the custom of trade is concerned, the issues in the present case were framed in the Chief Court of Sind by consent of the parties and it is not: open to the appellants at this late stage to argue that the onus was wrongly placed on them for establishing the custom of trade. At any rate, this objection has no material bearing on the merits of the appeal as both the parties have led evidence and the question what was the custom of trade prevalent amongst bankers at Karachi in respect of cheques or bills of exchange drawn on non‑scheduled banks can be easily ascertained on that evidence.

6. What was the, custom of trade amongst bankers at Karachi‑ is purely a question of. fact and this Court sitting in second appeal cannot disturb the finding of fact unless it is satisfied that it is against the well established principles o 6 law or is based on no evidence and the finding arrived at is unreasonable. . None of these deficiencies is present in this case. It is not disputed before us that the liability of the appellant in respect of the respondent's claim is to be deter mined under the provisions of section 211 of the Contract Act, which is in the following terms

"An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if any profit accrues, he must account for it.

A perusal of this section makes it perfectly clear that it is the duty of an agent to conduct the business of his principal according to the directions given by the principal, and if there are no such directions or in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. This section further provides that when the agent acts otherwise, if any loss be sustained he must make it good to his principal. It is the case of none of the parties that any directions were given in the present case to the appellants to conduct the business entrusted to them by the respondent. The fate of this case, therefore, depended within a very narrow compass, namely, whether the appellants as agent conducted the business of the principal according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. It was for this reason that the onus of the issue was placed on the appellants to prove this custom and the appellants also led evidence in .the first instance. The learned Additional District Judge has considered in detail the evidence produced by the appellants in support of the alleged custom of trade: The appellants produced only three witnesses. D. W. 1 Nazar Hussain, Supervisor of the appellant's bank, D. W. 2 P. B. Kotwal, Accountant, Central Bank of India, and D. W. 3 S. W. H. Jaffery, Head Checking Officer of Muslim Commercial Bank, Karachi. Except D. W. 1 Nazar Hussain, the other witnesses have not stated that the practice in all banks in Karachi for collecting drafts from non‑scheduled banks is that the drawing bank issues a cheque on the schedule bankers and that the cheque is sent. for clearance. D. W. 2, P. B. Kotwal and D. W. 3, S. W. H: Jaffery have deposed about the practice followed in their banks and have not stated anything about the practice prevalent in other banks of Karachi. None of the witnesses produced on behalf of the appellants was able to cite specific instances where their bank had followed the alleged practice. On the other hand, Exh. D. W. 3/1, a letter written by the Muslim Commercial Bank shows that the alleged practice was not uniform even in the Central Bank of India and the Muslim Commercial Bank. In the above‑mentioned letter dated the 5th of August 1957, the Muslim Commercial Bank stated as under

"The mode of payment depends on the instructions we issue to the paying banks at the time of presentation of these cheques on their counters for payment, which in turn depends on the instructions of the clients keeping in view, the amount of the cheque and status of the drawee."

This statement is absolutely different from what was deposed by D. W. 3 in the witness box. In these circumstances it seems to us that the learned Additional District Judge was perfectly justified in holding that the appellants had failed to establish the alleged practice on which they acted in the present case.

7. There can be quarrel ,(sic) with the proposition urged by Mr. Sayed A. Sheikh that the standard of proof of a mercantile usage is not that it should have antiquity, uniformity or not oriety of custom, which becomes a local law But as laid down by the Judicial Committee in Juggomohun Ghose v. Manickchund and Kaisreechund (7 M I A 263) it must be such that the parties who entered into the contract were both cognisant of the usage.

Their Lordships in this connection at page 282 of the report observed:‑

"The usage may be still in course of growth ; it may require evidence for its support in each case ; but in the result it is enough if it appears to be so well known and acquiesced in, that it may be reasonably presumed to have been an ingredient tacitly imported by the parties into their contract."

We have considered the findings of the learned Additional District Judge on the question under consideration in the light of the above‑mentioned observations and it appears to us that the evidence produced on behalf of the appellant on this point cannot stand this test.

8. Mr. Sayed A. Sheikh relied on a decision of the Judicial Committee in the case of Firm of Gokal Chand Jagan Nath v. Firm of Nand Ram Das Atma Ram (A I R 1938 P C 292). In that case their Lordships were considering the duty of agent collecting out standings for a principal from a debtor who was financially embarrassed. In that connection their Lordships observed that his duty in such cases is to collect all be can in the circumstances. It may be that it is more prudent not to press the debtor into immediate bankruptcy, but to take what he can in cash at the moment and to give time for the balance. But the most material portion of the observations of their Lordships, .reproduced below, is against the contention of the learned counsel for the appellants

"But apart from that their Lordships are of opinion that the propositions relied on by the appellants are not applicable to a case like this. There are various authorities to the effect that an agent's authority is at least presumptively to settle in cash, the absence of express authority to the contrary effect or of an authority by custom or usage. Thus in Blumbers v, Life Interest and Reversionary Securities Corporation (1897) 1 Ch. 171 the question was whether a valid tender of mortgage money had been made ; it was held that it had not, because it had been made by cheque, which was not a good tender. Again in Williams v. Evans (1866) 1 Q B 352 it was held that a purchaser at an auction sale could not claim that he had paid the purchase price as against the seller, when he had purported to do so by giving a bill of exchange to the auctioneer. That was no payment to discharge the purchaser as against the seller. Similarly, in Pape v. Westacott (1894) 1 Q B 272 an agent was held liable for parting with a licence against a cheque which was dishonoured, whereas he was only authorized to do so against cash. It is not necessary to multiply authorities on this point."

The principle deduced from the above observation is that ordinarily an agent's authority is at least presumptively to settle in cash in the absence of express authority to the contrary effect or of an authority by custom or usage. Mr. Naimuddin has referred us to the following passage of Michie on Bank and Banking, Vol. 6, at page 33

"In the absence of special authority, established custom or statutes to the contrary, a bank with which paper is deposited for collection has no authority to accept anything but money as payment. It can only receive payment of the debt due the principal in the legal currency of the country, or in bills which pass as money at their part value by the common consent of the community. Thus, for instance, a bank receiving paper for collection has no authority to accept a cheque in payment thereof . . . . . "

To the same effect is a decision of the United States Supreme Court in the case of Federal Reserve Bank of Richmond v. D. J. Malloy (U S S C R 417). It was held in that case that‑

"A bank to which a cheque is sent for collection becomes, personally liable in case it accepts as payment a draft which proves to be worthless."

It was further held in that case that

"A custom relied upon to take the place of a settled principle of law, and therefore to have the force of law, must be as definite and specific in negativing the principle as the law which it assumes to supplant is in affirming it."

Thus in banking dealings also the same principle applies which govern the cases of ordinary agency.

9. It will however be noticed that in the case under consideration the appellant bank was not collecting any out standings on behalf of their principals. They were instead to collect payment for a bank demand draft. They surrendered the bank demand draft without receiving the payment in cash and obtained a cheques in their favour from the Central Exchange Bank Limited, Lahore, in 'their own name on Grindlays Bank Limited, Karachi. This they could only do if they were able to establish custom to that effect. The learned Additional District Judge on this question has given an adverse finding against the appellant arid to second appeal we are not, inclined to interfere with the finding of fact on this point.

10. In the result we find no force in this appeal and dismiss it with. Costs.

Appeal dismisse.

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