National Commercial Banking Corporation of Australia Ltd v Batty
(1986) 160 CLR 251(Judgment by: Gibbs CJ)
Between: National Commercial Banking Corporation of Australia Ltd
And: Batty
Judges:
Gibbs CJWilson J
Brennan J
Deane J
Dawson J
Subject References:
Partnership
Banker and Customer
Judgment date: 13 May 1986
Judgment by:
Gibbs CJ
This is an appeal from a judgment of the Court of Appeal of the Supreme Court of New South Wales affirming a judgment of Yeldham J. The appellant, National Australia Bank Limited, was the defendant in an action brought by Robert Bushby Pty. Ltd. to recover damages for the conversion of two cheques, the total amount of which was $29,690.61, or alternatively payment of that amount as money had and received. The Bank delivered a cross-claim against Anthony Alan Davis and Michael Ashton Batty (the present respondent), claiming an order indemnifying the Bank against any amount found to be payable by it to the plaintiff including interest and costs. Yeldham J. gave judgment for Robert Bushby Pty. Ltd. against the Bank in the sum of $52,796.61 (which included interest) and costs, and on the cross-claim gave judgment for Mr Batty against the Bank. Mr Davis had died shortly after the commencement of the proceedings and the cross-claim against him was stood over generally. The Bank now appeals against the judgment given in favour of Mr Batty.
2. Robert Bushby Pty. Ltd. was a private company formed in 1969 to take over the interest of Mr Robert Bushby in a general store at Boorowa, a country town in New South Wales. The governing directors of the company were Mr Robert Bushby and his wife. Mr Davis, who was a partner in A.A. Davis Herniman & Co., a firm of accountants which carried on business at Katoomba, was a friend of Mr Bushby; he assisted in the formation of the company and later became its auditor. Mr Batty was at that time employed by the firm of accountants as a clerk, and had been so employed since 1960. On 1 January 1975, after the retirement of Mr Herniman from the firm, Mr Batty became the partner of Mr Davis, and the name of the firm became Davis Batty & Co. During January 1975 a current account for the firm was opened at the Katoomba Branch of the Bank and on 1 March 1975 an account under the name "Davis Batty & Co. Trust Account" was opened at that Branch. On 26 November 1975 Mr Bushby died. Mr Davis was named as one of the executors in his will. Soon after the death, Mrs Bushby, as the sole governing director of Robert Bushby Pty. Ltd., appointed Mr Davis to be a director of that company. Mrs Bushby gave to Mr Davis a key to a strongbox kept in a safe at the business premises and Mr Davis took various documents from the box to his office at Katoomba. The documents included some personal papers of Mr Bushby and, in addition, two sets of documents relating to loans made by the company to Esanda Limited ("Esanda") and Industrial Acceptance Corporation Ltd. ("I.A.C.") respectively. Mr Davis secured the repayment of these loans - prematurely in the case of the I.A.C. loan. He did so, in the case of the Esanda loan, by making a request signed "For Robert Bushby Pty. Ltd. - A.A. Davis, Director" and, although the evidence is silent, it may be inferred that he obtained repayment from I.A.C. as the result of a similar request. In January 1976 he received from Esanda a bank cheque for $10,000 drawn in favour of "Robert Bushby Pty. Limited or Bearer" and crossed "Not Negotiable" and from I.A.C. a cheque for $19,690.61 drawn by that company in favour of "Robert Bushby Pty. Limited or order" and crossed "Not Negotiable Account Payee". Mr Davis endorsed the cheque drawn by I.A.C., "Robert Bushby Pty. Ltd., A.A. Davis (Director)". On 21 January 1976 he deposited both cheques to the credit of the Davis Batty & Co. Trust Account at the Katoomba Branch of the Bank and the Bank collected the proceeds of the two cheques. Mr Davis subsequently used the proceeds for his own purposes.
He had no authority to obtain repayment of the loans or to receive the proceeds of the cheques. As an executor of Robert Bushby deceased, he had no right to the property of Robert Bushby Pty. Ltd., and as a director of the company he had no right to take it on himself to redeem the loans and receive the proceeds without the consent of the governing director, Mrs Bushby, who learned nothing of these happenings until long afterwards. It is plain that his conduct was fraudulent. The learned trial judge found that he was "quite satisfied that Mr Batty had no knowledge whatever of any fraudulent conduct on the part of his partner and was in no way a beneficiary from what occurred".
This finding cannot be challenged. Later in 1976, Mr Batty discovered the irregularities in the trust account and the partnership was dissolved.
3. The cross-claim by the Bank, as originally framed, alleged (1) a breach of an implied agreement between the Bank and the cross-defendants in relation to the keeping of the Davis Batty & Co. Trust Account and (2) a fraudulent representation that the cross-defendants were authorized by the company to deposit the cheques or that they were the true owners of the cheques. At the trial, counsel for the Bank sought leave to amend the cross-claim to add, in the alternative, a claim for money had and received. Neither the trial judge nor the Court of Appeal found it necessary to rule on the application, since they held that in any case the Bank could not succeed.
4. Before us, two submissions were made on behalf of the appellants - first, that Mr Batty was liable under s.10 of the Partnership Act 1892 (N.S.W.), as amended ("the Partnership Act"), for the fraud of his partner in inducing the Bank to collect the proceeds of the cheques and, secondly, that the proceeds of the cheques credited to the trust account of the firm were moneys received by the firm to the use of the Bank.
5. Section 10 of the Partnership Act provides as follows:
"Where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner of the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act."
In the present case it is right to conclude that loss was caused to the Bank by the wrongful act of Mr Davis. By lodging the cheques for deposit Mr Davis impliedly represented to the Bank that he was entitled to do so - in other words, his conduct implied that he either was the owner of the cheques or was acting with the authority of the owner: cf. Reg. v. Lambie [1982] AC 449 , at p 460. It was, of course, necessary for the Bank to prove that it had been induced by the implied representation to act to its detriment by collecting the proceeds of the cheques. The Bank called no evidence that it relied upon the representation but it may be inferred that it did so. In Smith v. Chadwick (1884) 9 App.Cas. 187, at p 196, Lord Blackburn said:
"I do not think it is necessary, in order to prove this, that the plaintiff always should be called as a witness to swear that he acted upon the inducement. At the time when Pasley v. Freeman (2 Sm. L.C. 66, 73, 86 (8th ed.)) was decided, and for many years afterwards, he could not be so called. I think that if it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, and it is proved that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement."
It was a fair inference of fact in the present case that the Bank collected the proceeds of the cheques because it was induced to believe that Mr Davis was entitled to deposit them. If it had known that Mr Davis had no authority to deposit the cheques it is inconceivable that it would have collected the proceeds: cf. Reg. v. Lambie, at p 460. By acting on the representation the Bank became liable for the conversion of the cheques. It is true that the Bank was negligent in collecting the cheques - the finding to that effect made in the Supreme Court, and the rejection of the Bank's defence to the company's action based on s.88D of the Bills of Exchange Act 1909 (Cth), as amended, are not now the subject of appeal. However, the fact that the Bank was negligent does not mean that it did not act on the faith of the representation: see Spencer Bower and Turner, Actionable Misrepresentation, 3rd ed. (1974), pp.217-219 and cases there cited.
6. The question then is whether Mr Davis, when he deposited the cheques, was acting in the ordinary course of the business of the firm or with the authority of his co-partner, Mr Batty. It is of course clear that Mr Davis did not have the actual authority of his co-partner to deposit the cheques. The learned trial judge found that Mr Davis, in depositing the cheques, was not acting in the ordinary course of the business of the firm. In support of that finding the learned judge said that the cheques in question were substantially larger than any others which had been paid into the trust account and that they were, unlike other cheques paid into that account, payable to a third party (i.e., to someone other than the firm or one of the partners). It is true that the cheques were considerably larger than those previously paid into the account, at least during the period covered by the ledger sheets put in evidence, i.e. from 18 April 1975 onwards. But it is not true that cheques payable to other persons than the firm had never been paid into the account. Mr Batty, in evidence, acknowledged that some cheques payable to "third parties", e.g. clients, were paid into the account, although he said that this was very much the exception, rather than the rule, and he could not remember any particular instance of such a cheque. Other circumstances which the learned trial judge took into account in making his critical finding were that when the cheques in question were deposited the usual trust account deposit book was not used and the secretary who normally carried out the banking did not make the deposit. In the Court of Appeal, Priestly J.A., with whom the other members of the Court agreed, held that this finding of Yeldham J. was correct. He said:
"Although it may be correctly said that his Honour ... was not completely accurate in saying that cheques payable to third parties were not paid into the trust account, the tenor of the evidence is substantially to that effect and the other matters of evidence to which his Honour referred, taken with Mr Batty's evidence ... combine to make the correct finding ... the one at which his Honour arrived, namely that the deposit of the cheques was not done by Mr Davis acting in the ordinary course of the business of the firm or with the authority, express or implied, of Mr Batty."
7. There were some further matters which Yeldham J. had taken into account in deciding that the Bank had been negligent in collecting the cheques, but which he did not mention in making his finding that Mr Davis had not acted in the ordinary course of business of the firm. Although the account was described as a trust account, it had been in overdraft during April, May and June 1975 and again in December 1975. Also, the way in which Mr Davis had endorsed the I.A.C. cheque should have made the Bank aware that he was seeking to pay a cheque drawn in favour of a company of which he was a director into the trust account of his own firm.
8. Before us, Mr Handley, for the appellant Bank, criticized the judgments in the Supreme Court on the ground that they lost sight of the question whether the acts of Mr Davis were within his apparent authority. Section 10 of the Partnership Act does not expressly refer to "apparent authority", although those words appear in s.11(a). The contrast between the two sections might suggest that s.10 refers only to actual authority (including, no doubt, implied authority), and does not refer to apparent (or ostensible) authority. However, it has been said that "the liability of partners which is declared by these sections is merely a branch of the law of principal and agent": see British Homes Assurance Corporation, Limited v. Paterson (1902) 2 Ch 404, at p 408. Under the law of agency, as commonly stated, the principal is liable for a tort committed by his agent acting within the scope of his authority, whether the authority be actual or apparent: Halsbury, vol.1, 4th ed., par.847; Bowstead on Agency, 14th ed. (1976), at p.310; Fridman, The Law of Agency, 5th ed. (1983), at pp.276-277. It is unnecessary to consider the question (discussed by Dixon J. in Colonial Mutual Life Assurance Society Ltd. v. Producers and Citizens Co-operative Assurance Co. of Australia Ltd. (1931) 46 CLR 41 , at pp 49-50 and Atiyah, Vicarious Liability in the Law of Torts (1967), Ch.9) whether there is any general rule that a principal is liable for the wrongful acts of an agent which the principal did not directly authorize, for the common statement of the law is at least correct in cases of fraud. In many cases, actual and apparent authority will "co-exist and coincide": Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [1964] 2 QB 480 , at p 502; Hely-Hutchinson v. Brayhead Ltd. [1968] 1 QB 549 , at p 593. In a case such as the present the apparent authority of Mr Davis, vis-a-vis the Bank, did not extend to doing anything outside the ordinary course of the business of the firm; the firm did not hold him out as having any wider authority than that. When the two partners, on 1 March 1975, signed the application to open the Davis Batty & Co. Trust Account, and thereby requested the Bank "to accept for the credit of the said account any cheques drafts bills of exchange promissory notes or other instruments made payable to any one or more of us" (cl.1(C) of the application), each partner in effect represented to the Bank that the other had his authority to deposit cheques to the credit of the account. Clause 1(C) of the application is rather ambiguous but it may be assumed that the words "made payable to any one or more of us" qualify the immediate antecedent "other instruments" and not "cheques".
However, the representation constituted by the application could not reasonably have been understood as authorizing Mr Davis to deposit cheques which neither he nor Mr Batty had any right or authority to deposit. In the ordinary course of the business of the firm Mr Davis could deposit to the credit of the account only cheques to which the firm was entitled or which it had authority to deposit. In the present case it was enough for the learned judges in the Supreme Court to inquire, as they did, whether in depositing the cheques in question Mr Davis was acting in the ordinary course of the business of the firm. In Lloyd v. Grace, Smith & Co. [1912] AC 716 , at p 736 Lord Macnaghten pointed out "that the expressions 'acting within his authority,' 'acting in the course of his employment,' and the expression 'acting within the scope of his agency' ... as applied to an agent, speaking broadly, mean one and the same thing". He went on to refer with approval to the statement of Willes J. in Barwick v. English Joint Stock Bank (1867) LR 2 Ex 259, at p 266:
"In all these cases it may be said, as it was said here, that the master has not authorized the act. It is true, he has not authorized the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which the agent has conducted himself in doing the business which it was the act of his master to place him in."
The law was clearly stated in Hamlyn v. Houston & Co. [1903] 1 KB 81 , at p 85 (a case of partnership):
"It is too well established by the authorities to be now disputed that a principal may be liable for the fraud or other illegal act committed by his agent within the general scope of the authority given to him, and even the fact that the act of the agent is criminal does not necessarily take it out of the scope of his authority."
9. It is beyond argument that the act of obtaining the cheques was quite outside the scope of Mr Davis' authority as a partner. He had no authority, actual, implied or apparent, from the firm to obtain or collect the proceeds of cheques belonging to the company. Moreover, it was not in the ordinary course of the business of the firm, or within the general scope of the authority of Mr Davis as a partner, to deposit to the firm's trust account cheques which he had obtained for his own purposes and to which the firm was not entitled. In depositing those cheques he was not doing unlawfully an act within the scope of his authority, or acting unlawfully in the ordinary course of the firm's business, but was doing something outside his authority and outside the course of the firm's business. It was submitted on behalf of the Bank that the deposit was within Mr Davis' apparent authority, which, it was said, was to deposit cheques generally to the trust account. Put in another way, it was said that in judging whether Mr Davis acted in the ordinary course of business, what he did "must be regarded as upon the surface it appeared to" the bank: cf. Polkinghorne v. Holland (1934) 51 CLR 143 , at p 157. However, neither the lodgment of the application to open the account, nor the subsequent operations on the account, amounted to a representation to the Bank, or caused it to appear, that Mr Davis was authorized to deposit to the account any cheques whatsoever, i.e., even if the firm was not entitled to them or authorized to deposit them. His apparent authority was to deposit cheques which the firm was entitled or authorized to deposit. The class of acts which he was apparently authorized to do did not extend to the deposit of all cheques. To take an obvious example, it could not be said that it was within the apparent authority of Mr Davis to deposit to the trust account a cheque for a very large sum payable to a well known public company with which he had no apparent connexion.
10. The question then is whether it was within the apparent authority of Mr Davis to deposit the cheques in question to the trust account, having regard to the nature of the cheques themselves, and to the circumstances in which they were deposited. The answer is clearly that it was not. I would attach little or no importance to the fact that the trust account deposit book was not used and that the secretary did not make the deposit. However normally it would not be right for the director of a company, without specific authority, to pay the company's cheques into his own account, or into a joint account in which the company had no interest. The cheques in question were payable to the company, and one of them was endorsed by Mr Davis as a director of the company. The cheques were substantial in amount compared with those earlier deposited. The deposit to the account of cheques drawn in favour of third persons was very exceptional. The account, although described as a trust account, had recently been in overdraft. These circumstances, in combination, were sufficient to put the Bank upon its guard and inform it that Mr Davis was not acting within his authority.
11. For the reasons I have given I would conclude that the deposit was not within the scope of the actual or apparent authority of Mr Davis or within the ordinary course of the business of the firm and that Mr Batty cannot be made liable for Mr Davis' wrongful act in depositing them.
12. The alternative submission advanced on behalf of the Bank was that when the Bank credited the proceeds of the cheques to the trust account, the amount of the proceeds was had and received by the members of the firm to the use of the Bank. In argument before the Court of Appeal it was also submitted that the money was had and received by the firm at the times when the proceeds of the cheques were paid out of the account to or for the benefit of Mr Davis. The Court of Appeal refused to entertain that submission, because it had not been made at first instance and because there was inadequate evidence regarding the circumstances in which the payments out were made. The submission was not repeated before us.
13. The argument now submitted on behalf of the Bank is that Mr Batty received moneys of the Bank when the proceeds of the cheques were credited to the trust account. The question whether the moneys collected and credited to the account were the moneys of the Bank was not considered in the Supreme Court and was not fully argued before us. It is at the very least doubtful whether those proceeds were moneys of the Bank. There is nothing to suggest that the Bank acted otherwise than as an agent for collection in respect of the cheques and not as the holder for value, i.e., it received payment for its customer, the firm, and held the proceeds at the customer's disposal: see Capital and Counties Bank v. Gordon [1903] AC 240 , at pp 244-245. In Joachimson v. Swiss Bank Corporation [1921] 3 KB 110 , at p 127, Atkin L.J. said:
"The bank undertakes to receive money and to collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them."
If, in the present case, the firm had been entitled to the cheques, the position would have been that the Bank received payment from the paying bank as agent for the firm, and the proceeds of the cheques, when collected, would have been the firm's moneys; once they were credited to the firm's account the Bank would have become the debtor of the firm. Thereafter the proceeds would have become an asset of the Bank and the firm would have had a right to repayment on demand (Croton v. The Queen (1967) 117 CLR 326 , at p 330) but we are not concerned with the position after the moneys were credited to the account. In fact the cheques were the property of the company which could have sued the Bank for conversion (as it did) or could have elected to sue the Bank for money had and received. In these circumstances the money credited to the firm's account would appear to have been the money of the company and not the money of the Bank. No doubt once the company obtained judgment against the Bank, and the judgment was satisfied, the property in the cheques would pass to the Bank: Salmond on Torts, 18th ed. (1981), at pp.527-528. Obviously there was neither judgment nor satisfaction at the time when the proceeds of the cheques were paid to the credit of the firm's account. The remedy of the Bank, in the events which happened, was to claim to be indemnified for the loss occasioned to it by the false representation impliedly made by Mr Davis when he deposited the cheques. It has of course made such a claim, but for reasons already given cannot succeed against Mr Batty. For these reasons it appears difficult to contend that the moneys credited to the account were had and received to the use of the Bank. However, since this matter was not fully explored I shall proceed to consider whether Mr Batty is liable, on the assumption that the moneys so credited were moneys of the Bank.
14. The question whether Mr Batty received the moneys has to be answered in the light of the finding that the cheques were not deposited with his authority or in the ordinary course of the business of the firm. If the moneys had been paid into the account of the firm in the ordinary course of the business of the firm, and Mr Davis had then wrongly disposed of them, Mr Batty would have been liable under s.11(a) of the Partnership Act. However the present case cannot be decided on that basis. The question is whether Mr Batty is liable because the moneys went into the firm's account, without his knowledge and without his actual or apparent authority. Mr Batty did not deal with the money in any way nor expressly authorize anyone else to do so. Mr Handley did not seek to challenge the finding of the Court of Appeal that Mr Batty neither knew nor ought to have known that the moneys were credited to the account. He submitted that Mr Batty had the means of knowing that the company's moneys were credited to the account, or rather, would have had the means of knowing if he had not left the operation of the account entirely to Mr Davis. If, for example, Mr Batty had insisted that he join in signing all deposit forms, he would have been in a position to know what deposits were made to the account. This, it was said, was enough to fix Mr Batty with liability for the moneys paid into the account which he was entitled to control.
15. In support of this submission, reference was made to three decisions. In the first, Marsh v. Keating (1834) 2 Cl & F 250 (6 ER 1149), Fauntleroy, a partner in a bank, caused stock belonging to a customer to be sold out by a forged power of attorney. The proceeds were paid to the account of the bank, at the house of the bank's agents, and were appropriated by Fauntleroy. The partners of Fauntleroy were ignorant of the fraud but might, with common diligence, have known of it. It was held that the customer could maintain an action against the partners for money had and received. The opinion of the judges was delivered to the House of Lords by Park J. He dealt with the argument that the proceeds of the sale of the stock had never come into the hands of the defendants so as to be money received by them to the use of the plaintiff and said, at p.288 (p.1163 of E.R.), that the consideration of this argument involved two questions:
"First, did the money actually come into the possession of the Defendants? Secondly, if it ever was in their possession, had the Defendants the means of knowledge, whilst it remained in their hands, that it was the money of the Plaintiff and not the money of Fauntleroy?"
The first question having been answered in the affirmative on the facts, Park J. went on to deal with the question that is the critical one in the present case. He said, at pp.289-290 (p.1164 of E.R.):
"But it is urged, that the present Defendants had no knowledge that the money was the property of the Plaintiff, being perfectly ignorant, as the special verdict finds, of the commission of the forgery, of the sale of the stock, or the payment of the produce of such sale into their account at Martin and Co.'s. It must be admitted, that they were so far imposed upon by the acts of their partner, as to be ignorant that the sum above mentioned was the produce of the Plaintiff's stock; but it is equally clear that the Defendants might have discovered the payment of the money, and the source from which it was derived, if they had used the ordinary diligence of men of business. If they had not the actual knowledge, they had all the means of knowledge; and there is no principle of law upon which they can succeed in protecting themselves from responsibility, in a case wherein, if actual knowledge was necessary, they might have acquired it by using the ordinary diligence which their calling requires."
16. This decision is an unsatisfactory one. It has been pointed out by writers of the highest authority (Lord Lindley and Sir Frederick Pollock) that in that case it was the business of the firm to sell stock belonging to their customers and to receive and bank the proceeds, and that the customers' property had come into the custody of the firm in the ordinary course of business: see the discussion by Dixon J. in James v. Oxley (1939) 61 CLR 433 , at pp 454-455. In modern law, at least, this would have been enough to render an innocent partner liable.
17. Marsh v. Keating was considered in Jacobs v. Morris (1901) 1 Ch 261; (1902) 1 Ch 816. In that case the London agent of Louis Jacobs, a Melbourne merchant, purporting to act on behalf of Jacobs under a power of attorney, borrowed money from Messrs Morris and paid it into Jacobs' London account and then misapplied it, without Jacobs' knowledge. Jacobs was held not to be liable to Messrs Morris. Farwell J., at first instance, following Marsh v. Keating, said that for Messrs Morris to succeed it was necessary to show that Jacobs knew or had means of knowing that the money had been paid into his account (see at pp.269, 271). He regarded this test as the application of those equitable principles to which Lord Mansfield referred in Moses v. Macferlan (1760) 2 Burr 1005 (97 ER 676), and went on to consider whether "ex aequo et bono Messrs. Morris ought to succeed". He held that they should not because the power of attorney, which showed that the agent had no power to borrow, had been produced to them and they had not read it, and because Jacobs did not know of, or benefit from, the borrowing: see at p.271. In the Court of Appeal, the judgment of Farwell J. was upheld. Vaughan Williams L.J. based his conclusion on the estoppel arising against Messrs Morris by reason that they had constructive notice, when they lent the money, that the agent had no authority to borrow it: see at p.830. He doubted, at p.830, whether Marsh v. Keating decided that "ignorance and want of means of knowledge will exonerate a person through whose account a sum of money has passed from responsibility" and said that the ignorance in such a case as Marsh v. Keating "seems evidence of negligence, or of the wide limits of actual authority given to an agent appointed by the principal to deal with strangers": see at p.831. Stirling L.J. also considered that the cause of the loss was the "neglect of ordinary business precautions" by Messrs Morris, but he went on to agree with the view taken by Farwell J. of the decision in Marsh v. Keating: see at p 833. Cozens-Hardy L.J. expressed agreement with Farwell J.'s judgment, but added that it would not be just to hold Jacobs liable for an act done by his attorney beyond the scope of his authority in favour of Messrs Morris, who knew the limits of the authority: see at pp.833-834. The case does not decide that means of knowledge would be enough to render liable a person into whose account money has been paid in circumstances like the present.
18. The matter came to be considered in this Court in James v. Oxley. There a clerk to a firm of solicitors fraudulently obtained from the plaintiffs a cheque and paid it into the firm's trust account. The partners in the firm (the defendants) did not know of the cheque but one of them, believing the clerk's false story that another person had asked that the amount of the cheque should be exchanged for two cheques of the firm, drew two cheques and gave them to the clerk, who cashed them and misappropriated the proceeds. It was held that the plaintiffs were entitled to maintain an action for money had and received against the members of the firm. The cheque was not received in the ordinary course of the business of the firm. However the defendants knew that they had money belonging to someone else and one of the defendants dealt with the money in such a way that it was misappropriated: see at pp.444, 449-450, 456. This was enough to render them liable. However, Latham C.J. suggested that the elements of knowledge or means of knowledge might have been material: see at p.445. Rich J. did not deal with the question. Dixon J. (with whom McTiernan J. agreed) recognized, at p.454, the difficulty that arises when an agent, acting outside the course of his authority, pays the money of a stranger into a bank account in the name of his principal and then withdraws it under a general authority to sign cheques on the account. He said, at p.454:
"As the money has been credited to the principal or master, it has been placed at least theoretically under his control and received on his behalf. But it is evident that in such a case the agent may from first to last retain the power of dealing with the money as he chooses. Though the bank account is in the name of his principal, the latter may have no effective means of controlling the money and excluding the agent."
After discussing Jacobs v. Morris and Marsh v. Keating Dixon J. continued, at p 456:
"The explanation of the introduction into the question of the element of 'means of knowledge' may lie in the peculiarity of the position of partners in relation to a partnership bank account upon which each partner may be empowered to draw by himself. In substance, money, though temporarily there, may never be in the actual de-facto control of any member of the firm except the fraudulent partner. He may pay a cheque to the credit of the account and immediately draw against it. In such circumstances the technical 'receipt' by the firm may be considered as insufficient to make payment into the account a receipt to the use of the plaintiff unless the other partners knew or ought to have known of the credit and of its nature. In the same way, if an agent who operates on his principal's account free of his actual control or supervision pays in money fraudulently obtained from a stranger and forthwith draws it out again, the principal may be regarded as never having really received it to the use of the stranger unless he knew or ought to have known of its presence before it was withdrawn."
19. Although Dixon J. did not need to express a concluded opinion on this question, in my respectful opinion the solution which he tentatively suggested is the correct one. It is quite unnecessary for present purposes to discuss the theoretical basis of the action for money had and received. Whether the action is based on an implied promise to pay, or on a principle designed to prevent unjust enrichment, the emphasis on justice and equity in both old and modern authority on this subject supports the view that the action will not lie unless the defendant in justice and equity ought to pay the money to the plaintiff: see Moses v. Macferlan, at p 1012 (pp.680-681 of ER); Campbell v. Kitchen & Sons Ltd. and Brisbane Soap Co. Ltd. (1910) 12 CLR 515 , at p 531; R. v. Brown (1912) 14 CLR 17 , at p 25; Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ld. [1943] AC 32 , at pp 61, 64; Watney v. Mass (1954) 54 SRNSW 203; Fischler v. Administrator of Roumanian Property (1960) 1 WLR 917 , at pp 946-947; [1960] 3 All ER 433 , at pp 446-447. Where, because of the action of a servant or agent acting outside the scope of his authority, or for that matter because of the action of a complete stranger, money has been paid into the account of the defendant, who has technically received it, although he is quite unaware of that fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account. In principle, in those circumstances, the defendant ought not to be liable unless, before the money was misappropriated, he knew or ought to have known that he had possession or control of it. In other words, where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part. That conclusion is not inconsistent with the words of Park J. in Marsh v. Keating or with the actual decision in Jacobs v. Morris and is supported by the remarks of Dixon J. in James v. Oxley. In the present case Mr Batty was not guilty of any want of ordinary diligence for failing to become aware that the money was paid into the account. He in fact discovered some time after the event what had occurred, but that was too late to enable him to prevent the misappropriation. From the time when the money was credited to the account until the time when it was withdrawn (some time during February 1976) Mr Batty neither knew nor ought to have known that he had (technically) possession or control of it. In these circumstances he is not liable to the Bank as for money had and received.
20. For these reasons the judgment given in favour of Mr Batty on the cross-claim was rightly affirmed by the Court of Appeal.
21. I would dismiss the appeal.