Lysaght Bros and Co Ltd v Falk [1905] HCA 7

ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES. Fe H.C. oF A. tidenee - Pleadting - Principal and agent - Authority - Action against principal on 4995, contract made with agent - Plea of non-assumpsit - Fraud of Agent - Knowledge = - - f Contructee - -Reguive Generates, Dec. 1902 (N.S. W.), 77. 64, 67. Sypyey,

Ivis not within the scope of an agent's authority to bind his principals by oe

"contract which, although made ostensibly on their behalf, is, to the know- ledge of the other party, really made for his own benefit, even though the Griith C.J,

5 Barton and Contract is of a kind which he has a general authority to make; and there: QConnor J.

fore, where an agent makes such @ contract, and the party with whim, dealing is aware of the circumstances, the principals are not bound.

Howard v. Braithwaite, 1 V. & B., 202 5 British Mutual Banting ¥. Charnwood Forest Railway Company, 18 Q.B.D., TM; and g Broadieood (1899), 1 Q-B., 369, considered and applied,

In an action against the principals, upon a contract made by an under such circumstances, the defendant may give evidence, under non-nsstompsit, of all circumstances which tend to show that the agen

making the contract, was acting without authority, to the uowledge of he plaintiff, even though that evidence may also show that there was fraud collusion between the plaintiff and the agent in making the contract,

'The mere fact that the evidence would disclose such frand, does notre it necessary to plead the facts specially under Rule 67.

Decision of the Supreme Court (1904), 4 8.R. (N.S..), 665, reversed,

ApreaL from a decision of the Supreme Court of New s Wales, refusing to grant a rule nisi for a new trial (1),

The respondent brought an action against the appellants fy breach of a contract, by which the appellants agreed to sell to plaintiff, for twelve months from 2nd September, 1903, the whole of the appellants' output of spelter dross at £11 per ton, to delivered by the appellants from time to time as the dross produced at the works of the appellants.

The appellants were manufacturers of galvanized iron and wire-netting, and the spelter dross was a valuable product over after the process of passing the iron or wire through galvanizing tanks.

The breach of contract alleged in the declaration was a refus to deliver the dross as agreed.

'The appellants pleaded in the first instance (1) non assump (2) denial of respondent's readiness and willingness, and (3 denial of the breaches. :

appellants, in the course of an audit of their books, made cet discoveries as to the circumstances surrounding the m of the contract, which pointed to the conclusion that the con in had been procured by the respondent acting in fraudulent collusion with the appellants' general manager, one Wilkinson.

ppellant company, but at the date of the contract was no x in its employment.

he appellants took out a summons in Chambers for leave to sida plea to the following effect: - That the contract sued upon ind been made by Wilkinson ostensibly on behalf of the appel- 'gots, but really in fraudulent collusion with the respondent, lly for the benefit of the respondent, and against the interest of ~ the appellants, to the knowledge of Wilkinson and the respondent, "ud that Wilkinson had entered into the contract in order to "yard the respondent for having fraudulently countersigned, as "yerstary of the appellants, certain cheques on the appellants "janking account, after he had ceased to be secretary or to possess "my authority to so bind the appellants, these cheques being then _presnted by Wilkinson and the proceeds misappropriated by him. The summons was dismissed by Pring J., mainly on the ground that the affidavit filed in support did not state sufficiently the 'fuis relied upon, nor the time when they came to the knowledge 'ofthe appellants: Falk v. Lysaght Bros, & Co. Ltd. (1).

The ease subsequently came on for trial before Cohen J., at 'isi prius, and evidence was tendered by the appellants, under

• the plea of non asswmpsit, to prove that Wilkinson in making the contract had acted in fraudulent collusion with the respondent, and outside the seope of his authority, to the knowledge of the respondent, in the manner indicated in the proposed plea. Cohen Injected the evidence, on the ground that by virtue of rr. 64 ud 67 it was only admissible under a plea of fraud, and fraud 'ad not been pleaded. 'The appellants then asked to be allowed toamend by adding such a plea, but His Honor, under the Gireanstances, refused to allow the amendment. 'The reasons for therefusal did not clearly appear on His Honor's notes, but the tases Rosset v. Hartley (2); and Thompson v. Southern Coal. Co. NSA, (No. 2) (3), were referred to. The jury founda verdict forthe respondent, damages £840.

The appellants then moved the Full Court for a rule nisi for Stew trial on the grounds inter alia, that His Honor was in 'mor in rejecting the evidence as above stated, and in refusing to

MAUNSW. WAN, 38, (2) 7A. & EB, (3) 15 N.S.W. LR. (L), 166,

H.C. or A. allow an amendment as asked, and that there was no that the contract sued upon was made by the authority of or y binding on the appellants. Sn

facts which the appellants sought to prove do not amount to confession and avoidanee, within the meaning of r. 67, They gi to the root of the contract, and, if established, prove that the contract sued upon was not the contract of the appellants, In making the contract, Wilkinson was not acting as their agent, in their interests, but in the interests of himself and the respondent, to the knowledge of the respondent. The appellants were the fore not liable: Hambro v. Burnand (2). An agent's ar must be exercised honestly, and if it is exercised dishonestly, the knowledge of the party with whom the agent is dealing, th prineipal is not bound. The principal cannot be made liable on the ground of estoppel or holding out, where the faets are knownti the contractee: Shipway v. Broadwood (3) ; Foster v. Mackinnow (4); Hine v. Steamship Insurance Syndicate (5); Cheshire v Bailey (6); Salomons v. Pender (7); Coleman v. Riches(8); British Mutual Banking Co. v. Charnwood Forest Railway Co. (9); George Whitechureh Limited v. Cavanagh (10); Powis and Bryant v. Quebec Bank (11); Cundy v. Lindsay (1)

[Grirrrru CJ. referred to Ewart on Estoppel, and Panam and South Pacifie Telegraph Co. v. India Rubber, Gutta Pereha and Telegraph Works Company (13).

tive plea of the general issue, which under the old rules ofp might have been objected to on special demurrer. Denial

(6) L. T. Bera dan. 7th, 1904. (13) L-Re, 10 Ch, 515.

authority isa denial of the contract, and therefore the evidenee admissible under the general issue: Grant v. Norway (1).

yea going to the validity of a deed is equivalent to non est tum: National Provincial Bank of Englund v. Jackson (2)

{ples in eonfession and avoidance is, therefore, inappropriate,

me, as showing tht the alleged contract was outside the scope of the agent's thority, to the knowledge of the respondent, and therefore not hinding upon the appellants, it is not objectionable because it 'incidentally shows fraud on the part of the respondent. If the svidence was inadmissible under the general issue, the amendment sould have been allowed. Such an amendment comes within the meaning of sec. 260 (2) of the Common Law Procedure Act (NSW, 1899, "all such amendments as are necessary for the purpose of determining in the existing suit the real question in tontroversy between the parties shall be so made." That section ismandatory, and therefore, although the Judge has a discretion, itis his duty to allow an amendment in a proper case. The 'respondent could not have been misled or prejudiced in any way ly the amendment, because he had notice of the defence from the previous application in Chambers for anamendment. [He referred "toRiding v. Hawkins (4).]

Gordon KC. and A. Thomsvn, for the respondent. It is admitted that; if the proper issues had been raised and the facts alleged had ten proved, there would have beena good defence, but under the issue this evidence may not be given. 'The alleged con- truths not void ub initio, but one which, if the defence is estab- lished, might be rescinded or affirmed by the principal at his pti. The proper method of raising this defence is by a special

confessing the contract and setting out the facts relied upon avoidance. Until rescinded the contract binds the principal : mtv. Gold Exploration and Development Syndicate (5); mama und South Pacific Telegraph Co. v. India Rubber, Gutta

WCB. 665 ; 20 L.3., CP, ie 5 C.B., 665 5 . C.P., 93 ) 14 P.D,, 56.

Percha und Telegraph Works Co. (1); Pollock on Contry ed., p. 288. [Grivriri C. Railway Co. (2); and Reynell v. Lewis (3). i O'Connor J. referred to x. 67 of the Supreme Court Rules, Bullen and Leake on Pleadings, 3rd ed., p. 467.] x The evidence showed that such a contract as this was with the scope of the agent's authority. He was general manager ay had made similar contracts for the appellants before.

here the only evidence of the agent's anthority is given byt respondent, who knew that the agent was acting fraudula!

plaintiff must prove authority. Here his own evidence nega it]

'The same objection would apply in the case of an action 1 an illegal contract. The defendant cannot avail himself of th defence of illegality without specially pleading it, even if

requires this defence to be pleaded. 'The defence is, in fact, fa on the part of the respondent, whatever it may be in form, an the object of the rule is to prevent such a defence being nis unless the plaintiff is given notice, by the plea, of the facts upm which the defendant intends to rely. 'The rule should belibe construed so as to give the party in whose interest the rule made the full benefit which it was intended that he should receive [They referred also to Boston Deep Seu Fishing and Tee Co Ansell (4); and Cavendish-Bentinck v. Fenn (5)] > The point as to the amendment was not argued in the Com below, and the appellant should not be allowed to rely uponit now. It was virtually abandoned, because the judgment of th Court was not asked for upon the point. There had been appeal from the decision of Pring J. in Chambers, refusit allow the amendment, and the Judge at nisi prius was just in treating such failure to appeal as an acquiescence by @

() LR, 10Ch., 515, (4) 39 Ch. D., 339, Re 26. (5) 12 App. Cas., 652.

iertion unless he acted upon a wrong principle: Young vy, Thomas (1).

Cumpbell, in reply, referred to rr, 64 and 67 of Supreme Court

fulks; Stephen on Pleading, 6th ed., p. 185: Rolin und Innes, Court Practice, p. 386; Halbot v. Lens (3); and lrrison v. Universal Murine Insurance Co. (4).

GurrimH C.J. The question for determination in this appeal 'isin one aspect of it, a mere question of form; in another aspect itinvolves a very important question of principle. The action "yas brought by the respondent against the appellants upon amalleged contract for the sale of a quantity of spelter dross or future delivery during a period of twelve months. The appellants pleaded non asswmpsit, as the plea is called still in 'ew South Wales. Rule 64 of the Rules of the Supreme Court 'spmetically a transcript of the English rule 6 of 'Trinity 'Term 1853. It provides: " In all actions on simple contraet, except as

inafter excepted, the plea of non asswmpsit, or a plea travers- ing the contract or agreement. alleged in the declaration, shall uperate only as a denial in fact of the express contract, promise, agreement alleged, or of the matters of fact from which the

t, promise, or agreement alleged may be implied by law." That plea put the 'spondent upon the proof of all that was Messsary to establish the fact of the contract between himself nd the appellants. 'The contract in question was entered into,

'tot by the appellants themselves, under their seal, but by a person to be their agent.

Now, when an action is brought by a phintiff aguinst a defendant on a contract, he must prove that j_ uutmet was made, and, if the contract was made by an agent, Hemust prove the authori 'y of the agent to make it. That proof my be given in various ways, but the onus is upon the plaintiff prove the agent's authority

to make the specific contract sued ton. Ttmay be done by sho:

ypellats. The Court will not interfere with the exercise of his H.C. or A.

(GuwrritH C.J. referred to Australian Stewm Navigation Co, B%0s. & Co.

authority to make that contract, or it may be done by sii evidence to show that primd facie he had ohare contracts of that kind. But in every case the question ig: he authority in fact to make that contract? The most eom case is, I think, that though the agent had not express author to make the particular contract in question, he had been held oa by his principal as having authority to make contracts of th kind. In that case the principal cannot say to a person dealt with the agent on the faith of the holding out - Oh, secret instruetions to my agent." The principal is notallowed set that up by reason of estoppel. Having held out the age his agent to make contracts of that kind, he cannot set up, ag a person dealing innocently with the agent on the faith of holding out, that the agent has in fact gone beyond the limits d 'is authorit What a plaintiff undertakes to prove in a case ort is set out very clearly in a considered judgment of th Court of Exchequer in the case of Reynell v. Lewis (1) In delivering judgment, Pollock O.B. said (2

"The question, in all cases in which the plaintiff seeks to fi the defendant with liability upon a contract express or impli is whether such contract was made by the defendant, by hi or his agent, with the plaintiff or his agent, and this is a ques of fact for the decision of the jury upon the evidenee before

"The plaintiff, on whom the burden of proof lies in all cases, must, in order to recover against the defendant, show that he (the defendant) contracted expressly or impliedly; expres by making a contract with the plaintiff, impliedly, by giving a order to him under such circumstances as shew that it was m be gratuitously executed: and if the contract was not made ty the defendant personally, it must be proved that it was made an agent of the defendant properly authorized, and that it ms made as his contract." The learned Chief Baron then, pointing out how the ageney may be constituted, continued: " all these cases, if the agent, in making the contract, acts 0118 authority, the principal is bound by the contract, and the age contract is his contract, but not otherwise. This agency nay :

ited by the immediate act of the party, that is, by really the authority to the agent, or representing to him that he Jo lave it, or by constituting that relation to which the law tigches agency; or it may be created by the representation of defendant to the plaintiff, that the party making the contract isthe agent of the defendant, or that such relation exists as to stitute him such ; and if the plaintiff really makes the contract nthe faith of the defendant's representation, the defendant is found; he is estopped from disputing the truth of it with respeet that contract; and the representation of an authority is, quoad we, precisely the same as areal authority given by the defendant the supposed agent." A little further on he says: " Upon none ofthese propositions is there, we apprehend, the slightest doubt." Clearly, therefore, by the denial of the contract all these matters re put im issue, I will again summarise what the plaintiff must we, He must prove that the person with whom he dealt was the agent of the defendant, and that, in making the contract, the agent was acting as the agent of the defendant. Let me give an illustration of the difference. It is not enough that a man should le the agent of another to enable him to make any contract on his behalf; he must make it as his agent. For example: suppose the ease of a person authorized to sign a promissory note, per proc, and he makes a promissory note in payment of his own private debt and gives it to his ownereditor. Clearly that is not within his authority. 'The promissory note is not the note of his Principal, because the person taking it knows that the agent is tot acting for his principal, but for himself. Again, the master ofa ship is agent for the shipowner, and may sign a bill of lading on behalf of the owner for goods, but if the master were to sign Fill of lading for goods not put on board the ship, he would tot be acting for the owner ; and although he had authority to bills of lading, a contract made by him in such a way is the contract of his principal. That was decided in the case of Grant v. Norway (1). In the present case the respondent, as tiff, undertook to prove that the alleged agent, in making thecontract, was acting for the appellants and on their behalf. It has never been disputed that an agent who is not acting for

his prineipal but for his own benefit is acting beyond the soy of his authority. In the present ease the appellants song give evidence under the plea of non assumpsit to prove factewhih if established to the satisfaction of the jury, would have own tus the alleged contract was not made in any sense for the appelly benefit, but for the joint benefit of the agent and the respond According to all the statements of the law of agency that ha been brought under our notice, a contract made under those examstances is not within the authority of theagent. Tn thecaued Howard v. Braithwaite (1), decided by Eldon LC, i question was as to the authority of the agent by whom theq tract had been made, The Lord Chancellor said (2): "Whe aman is a general, or a special, agent, and, admitting the di ence of the principle governing the question, how much further one can bind the principal than the other can, it is impossi supposing a special agent can bind beyond his authority, to em tend, that if he made at the time a declaration that he had authority, the principal can be bound. So in the ease of a genenl agent as an auctioneer, he may at the auction state, what limit tions are imposed on his general power of agency." That is an instance of a case where an agent tells the other party that heis acting beyond the scope of his authority. But the principle is the same. It is manifestly unimportant whether the agent tell the person with whom he is dealing that he has no authority to make the contract, or whether the circumstances under whieh he makes it are, to the knowledge of the other party, such as show that he had no such authority. In either case the agent: acting beyond the scope of his authority, and the other person knows it. The rule was put very plainly by Lord Ksher MR, in The British Mutual Banking Co. v. Charnwood Forest Rail way Co. (3). That was an action against a company to recov damages for fraudulent misrepresentations, alleged to have been made by an agent of the company when acting within the seopeat his authority. Lord Hsker said (4): "'The rule has often beet expressed in the terms, that to bind the prineipal the agent must acting 'for the benefit' of the principal. This, in my opinion,

rent to saying that he must be acting 'for' the principal, if there is authority to do the act it does not matter if the inipal is benefited by it. I know of no case where the tmployer has been held liable when his servant has made state- not for his employer, but in his own interest." 'The same principle applies here. If the agent has acted in his awn interest, he does not bind his employer. But there is an exception to this rule in the case of a person dealing bond fide with the agent without knowledge of the limitation of his suthority. 'That is based upon the principle of estoppel; but there ean be no estoppel if the person dealing with the agent knows the actual facts, and knows that the agent is acting in his own interests and not in the interests of his employer. That is 'nanifest from the case of Hambro v. Burnand (1). The head- note of that case is: " Where an agent, in contracting on behalf of his principal, has acted within the terms of a written authority ven to him by the principal, but the existence of which was tut known to the other party to the contract, the principal can- 'ut, if the other party has acted bond. fide, repudiate liability on the contract on the ground that the agent, in making it, acted in his own interests, and not in those of his principal." 'The point ofthat is that the other party was acting bond fide. The pro- sition assumes that the agent, when acting in his own interests, as acting outside his authority, but, the other person not know- ing that, the principle to which I have referred applies, and the principal is estopped from denying the authority of the agent. All that it is necessary to read from the judgment in that case is the passage quoted from the judgment of the Privy Council "ilivered by Lord MacNughten in Bryant, Powis, and Bryant, Timitedv. Quebee Bunk (2). Collins M.R. said (3): "'The passage tlerred to is as follows: ' Whenever the very act of the agent is authorized by the terms of the power, that is whenever, by com- 'paring the act done by the agent with the words of the power, the act is in itself warranted by the terms used, such act is binding tm the constituent, as to all persons dealing in good faith with the agent; such persons are not bound to inquire into facts aliwnde.

ay (1904) 2 K.B., 10. (2) (1893) A.C., 170. (3) (1904) 2 K.B,, 10, at p. 21.

'The apparent authority is the real authority."" But, asT pin out a few moments ago, the underlying proposition, which it not thought necessary to state, is this: that the other panty m be dealing in good faith with the agent. If the person with wh the agent is dealing has a knowledge of circumstances which that the agent is acting in his own interest, and not in the interest of his principal, he cannot allege that there was authority,

It is conceded that, if the facts alleged in this case, and of which the appellants sought to give evidence, were established, they would have shown that the alleged agent had no authority in fact, because he was acting for himself and the respondent, and not for the appellants, in making the contract. Of course] express no opinion as to what would have been the result of the trial if the evidence had been given, but it is conceded that if these facts were proved, that is what they would establish,

The matters to which I have referred hitherto, are matters of law. I now come to what I described as the point of form. Itis this. Tt is contended that evidence of these facts cannot be given under the plea of the general issue, because, although they tend to show a want of authority in the agent, they also show fraud lent collusion between the agent and the respondent. But oneat the facts which the respondent, as plaintiff, has undertaken to establish is the authority of the agent. If he fails to establish that, and if upon the evidence it appears that the agent had no authority, and that the respondent knew it, what differenee canit make whether, in addition to proving that the agent had no authority, the appellants proved that he was engaged in a fraudu- lent enterprise ? For his contention in that regard the respondent relies on r, 67, which is as follows : - " In every species of action on contract, all matters in confession and avoidance, including not only those by way of discharge, but those which show the trans action to be either void or voidable in point of law, on the ground of fraud or otherwise, shall be specially pleaded," and examples are given. That rule in terms applies only to matters in confession and avoidance. A matter in confession and avoidance is one which admits the facts alleged in the declaration to be true Now the fact alleged in this declaration is that the appellants made a contract. The appellants' defence is: - "We made n0

sch contract, 'The contract alleged to be ours was made by

the contract is stated shortly, as it is allowed to be, as a made by the defendants, yet the substance of the mitter is that the short form is to be taken to include an allega-

as laid down by the Court of Exchequer in Reynell vy. (1), Now, expanding the declaration, it comes to this: One Wilkinson, the agent of the defendants, and acting for and on behalf of the defendants, entered into a contract with the intitf" 'The plea of non assumpsit puts in issue the making the contract by the agent in fact, but it also denies that in making the contract, if he made it, the agent was acting as agent for the dants. I felt considerable difficulty, that fact being put in

s in confession and avoidance could come in. 'The argument «sented to uson that point is that the appellants do in fact admit there was a contract, though in point of form they deny it. lisdefence, itis said, admits that there was a contract between the yat and the respondent, but alleges that it was made in fraud of

ous that, on the facts stated, there was no contract at all en the respondent and the appellants. 'The defence is a denial

ity, and if in order to establish that case the appellants ie the agent with acting fraudulently in collusion with the ident, that is altogether immaterial. I can conceive of no case Awhichan agent purports to bind his principal, when acting out- Hethe scope of his authority, to the knowledge of the other party, hich would not be very fairly designated a case of fraud; that is to isa fraud if the other party goes on and endeavours to ton the contract as a valid one. It seems to me not to {uestion of confession and avoidance, but one of traverse, and tthe evidence sought to be given was properly admissible iuler the general issue, The learned Chief Justice when the rule nisi for a new trial

H.C. or A. was refused, is reported to have merely said (1): "Yoy JS, hhave pleaded the fraud." I cannot help thinking that unig tyr the old system of pleading, a plea setting out the fats alleys) Bros. C0. in this ease would have been held to be bad on special deny : pig, a8 being equivalent to the general issue. The learned Chie Justice has now favoured us with written reasons forthe devin Grimih CJ. He says: "It would have been most unjust to a plaintiff comin into Court to prove as a matter of fact that the contract had b entered into, and so negative a plea of non assumpsit, i defendant were at liberty to say, 'I admit that there was a contract, my plea of non assumpsit does not avail me, but I induced to enter into the contract by fraud or misrepresentation' Well, if I may respectfully say so, I agree entirely with every word of that. We had occasion during the last few weeks make use of almost the same words in reference toa ease came before us in Hobart. Nothing could be more unfair tha to charge a party with fraud wil in this case we are dealing with a specific rule of pleading. the respondent has undertaken to prove is that the agen making the contract was acting as the agent of the principal, the appellants are entitled to negative that by any evidence wi will show that he was not so acting. The fallacy of the reasoning of the learned Chief Justice is that he assumes that the appellants: say in this case, "We admit that there was in fact a contract It seems to me on these pleadings that the appellants deny th there ever was a contract made by them, and that therefore itis not a question of confession and avoidance, but of denial. Objection was taken at the trial to the admission of this evidence, and it was rejected, and the appellants' counsel then: for leave to amend by pleading the matter of fraud spill For the reasons given I do not think that the amendment ms necessary, but, if it was, I think I ought to say that, in mj opinion, it was an amendment which, following the words oft Common Law Procedure Act 1899, sec. 260, the Court required to make "for the purpose of determining the real que tion in controversy between the parties." Tt is said that ™ matter is not open to us to consider on the appeal. It is

rosary for us t reexpresed, but I think that it is open to us on this appeal,

se the substantial question between the parties was whether appellants should be allowed to prove that their alleged nt had no authority to make the contract, and that the spondent knew it. If that could be proved, it was a substantial jefence to the action, If it could not be done without an amend- neat, then the amendment applied for should have been allowed. hat was one of the grounds taken in the memorandum of the «le nisi for a new trial, and, although it does not seem to have Jen dealt with specifically by counsel who moved for the rule "his, it was one of the essential points of the case. For the asons I have given, I think that no amendment was neces- sory, but that, if it was, it ought to have been allowed. Of course, if the respondent would have been prejudiced by allowing n amendment of this kind, that might have been a reason for an "sljounment, upon such terms as to costs or otherwise as justice night require; but, as a matter of fact, the material facts were dicited from the respondent himself in eross-examination.

For these reasons I am of opinion that a new trial should be granted.

Barton J. In'this case, the facts of which have already been 'bailed, an interlocutory application was made to Pring J. in Chambers for leave to add a special plea of fraud, 'The plea was inthese terms: [His Honor then read the plea, the effeet of which tas already been given in the statement of the facts, and con- tinued] That application was refused, and, the case coming on p trial in due course, the appellants, who were defendants, in (s-examination of the plaintiff, the respondent in this appeal, 'nlered evidence appropriate to that plea, if it had been allowed. question is whether it was not also appropriate to the general ueas pleaded. After the evidence in question had been tendered iuder the existing pleadings, and rejected, an application was made the appellants to allow a plea setting up those facts to be el. That application was also refused by Cohen J., who he case, and the result was a verdiet for £840 damages for

'o decide it, if Iam right in the opinion that I H. C. or a. 1905.

the plaintiff: [His Honor having referred to the proces the Supreme Court, proceeded. ]

The real question for us is, not as to whether any am which was applied for ought to have been allowed - I yi diseuss the decision of the Judge in Chambers or of the Jug presided at the trial in that respeet - but the question, as nowp

mats to the general issue, the case of Hambro v. Burnand() to whic

the Chief Justice has referred, is instructive. The headnote acer rately represents the substance of the decision, His Honor Chief Justice cited a quotation made in that case by Collins from the judgment of Lord MucNaghten in the case of Bryant, Powis, anid Bryant v. Quebec Bank (2). 1 will only ai what His Honor cited a few words occurring near the conclusion of the judgment of Romer LJ., which seem to me to apply specially to the facts of the present case (3): "In condusion I wish to say that, although, upon the terms of the wri authority given, the signing of the policies by the defendan Burnand was within the scope of his authority as agent, yet, i the plaintiffs had taken them with notice of the fraud of th agent, they would not have been entitled to récover upon them against the person defrauded." What his Lordship stated ther appears to me to have been the real ground of the decision it Shipway v. Broadwood (4). 'There the defendant agreed to chase a pair of horses from the plaintiff provided they passed as sound by a veterinary surgeon who was employ the defendant to examine them. The horses were certified as sound by the veterinary surgeon, and the defendant sent a che for the price. The horses were found to be unsound and

could not recover under the contract, which depended upon

() (1904) 2 K.B., 10, (3) (1904) 2 K.B., 10, at p25 i tH (1899) 1 Q.B., 369. 3

ity ofthe certificate. Tvegard that case as in principle identical sdutho present, assuming the evidence which was tendered by the indants to be before the Court, that is to say, evidence applic- shleto the plea which they endeavoured to have placed on the file, which in my opinion is only another way of stating the general . These authorities clearly state what is the law to be applied tosuch cases, but do not specifically touch the question of pleading, yt so faras they show this, that an action brought under cireumstances is bad at the root, because the evidence fexlered in support of the plaintiff's case fails to prove the con- ret Put in another way, it may be stated thus: if there is an satire absence of authority, which is the case here, if the proof tendered is borne out by the evidence, a plea setting up such a kfenee is not in confession and avoidance, but a traverse. The le which deals with the matter is one of the rules of 'Trinity 'Term 1853, now called r. 67 of the Supreme Court. The rule jsasfollows. [His Honor read the rule and continued.) 'Then 'examples are given. Those examples refer to matters which are in their essence instances of confession and avoidance. 'The rule worides that fraud must be specially pleaded, but the matter lich must be so pleaded is matter in confession and avoidance, an] we are consequently brought back to the question which is atthe root of the matter, viz., whether the evidence applicable to thereal defence of the appellants is matter in confession and 'woidance, Now, the evidence, as it has been put before us, goes tothe question whether there was any authority in the agent to ake the contract, or at least, whether, supposing there was 'tuthority, there was a genuine exercise of that authority on Wwhalf of the appellants. It can never be that a party is pre- Yented from giving that evidence under a plea which puts in 'sue the authority of the agent to make the particular contract, mhich isa traverse, merely because there is a rule which says that matters in confession and avoidance shall be specially Headed. Iwill here read a passage from Stephen on Pleading Which deals with this subject. It is at pages 161, 162 of the 6th td,as follows : - " On the subject of the general issues, it remains tnly to remark, that other pleas are ordinarily distinguished from them by the appellation of s, ecial pleas; and when resort is had

fession and avi ees it shall not be iar in pleading by attempt to get it in under a plea of the general issue. But tosy that, wherever the circumstances on which the plen is bas involve fraud, they shall be made the subject of a plea in

essentially a traverse is to be specially pleaded in confession avoidance, or that a denial of the mere existence or of the exerciy of authority, that is, a denial of the alleged contract in toto, ist be turned into what it cannot be - an admission of the cou and an excuse for its non-performance. Speaking of pleas confession and avoidance, I quote again from Stephen on Plaul ing, 6th ed., at p. 174: "With respect to the quality of the pleadings it is to be observed that it is of their essence (as th name itself imports) to confess the trath of the allegation which they propose to answer or avoid," that is to say, as is stated atp 49 of the same treatise, admitting the averments of fact in the declaration, to allege new facts which obviate or repel their lel effect. Now the legal effect of the averments in the respondents declaration is that there is a complete and binding contract by the appellants. Obviously that is a legal fact which the appellants dare not admit in pleading. 'The author continues : " Itisessent however, to every well-drawn plea of this class that the confession, though not express, should be distinctly implied in or inferatle from the matter of the pleading . . . If a pleading, there fore, purporting to be by way of confession and avoidance (of it other words, not pleaded by way of traverse), does not import & confession of the adverse allegation, it is informal and impr And, at p. 179: "It remains only to be observed that in all those cases where the nature of the answer is to give no colour t the adverse party, the proper course is to plead by way of traverse"

these passes it appears (i) that it would not be good in this ease to put on the file a plea which began by i a the contract the very existence of which the appellants and (ii) that, as it would be impossible under such eireum- ces to frame a plea which would give colour to the averment ofa contract, the only proper course is to plead by way of traverse. 'And it will be admitted that the only proper traverse to cover the facts put forward by the appellants in this case is the plea of

on assumpsit. "Thus there is found in an admirable though elementary text

book, what I venture to think a complete answer to the argument. for the respondent.

Tam foreed to the conclusion that the learned Judge who resided at the trial should have admitted the evidence tendered "jn eross-examination of the respondent, and all other evidence terial to the defence that this was a contraet to which the appellants were no parties, since it was entered into by Wilkinson vith the respondent, not on behalf of the appellants, but for, and 'to the mutual advantage of Wilkinson and the respondent - that {stosay, for reward to the former and to the profit of the latter, atthe expense of the appellants.

~ Iam therefore of opinion that the appeal should be allowed, and that the case should go down to a new trial on the present

OCoxxor J. I do not think there can be any doubt in this fa as to the law which regulates the rights of the parties, 'suming that the facts alleged by the appellants are proved. Bay authority conferred upon an agent, whether express or implied, must be taken to be subject to a condition that the authority is to be exercised honestly and on behalf of the Mineipal. 'That is a condition precedent to the right of exercising 'and, if that condition is not fulfilled, then there is no authority, and any act purporting to have been done under it, unless in a ing with innocent parties, is void. Further, it is quite clear that it person dealing with an agent has knowledge that there tasteen a fraudulent exereise of the authority, then as far as he is Concerned, he is not allowed to say that the authority exists.

• But the question has been raised whether, under the fonmof. pleadings, the appellants are allowed to set up those facts jy whieh they seek to invalidate the authority of theiragent, 'Th although a matter of ee isa _ matter of some consid

are not, they become a dducnianicckaee those hol the statement of their case, whether for plaintiff or defe upon the faith of them.

Now, the rule which is first to be looked at is r, 64, which provides [His Honor read the rule and continued]: - The plain in his declaration setting out his facts according to their effect alleges a contract, not by the appellants' agent, but by appellants themselves. The only plea of the appellants, that iti material to consider, is a denial of their having made such a em- tract. It will be observed that the contract put in evidence is a contract under the seal of the appellant company. If it had been different considerations might have arisen. It is a contract which can only bind the appellants by reason of the existence of certain facts, from which it could be implied that a contr binding on the appellants had been made, or, to quote words of the rule "from which the contract promise or agres alleged may be implied by law." Now, there are several facts which the respondent must necessarily prove before a contr binding on the appellants can be implied. Amongst those fai the principal is the fact of authority. 'This authority is sought to be made out, first, by reason of Wilkinson's position as ge in the second ge by theme

Sppallats aan which they had been in the habit of sellim before; and thirdly, because of the adoption of contracts ot similar nature made by their manager on previous oot

to make the particular contract sued upon. But, as I point out before, there must mee be, im every grant of authority,

Jy the appellants to prove those facts upon which he relies show the existence of authority, it is clearly open to the

'wil negative the implication which the respondent seeks to aw from them. Now, one of the inferences which the respon= dent seeks to draw is that the authority was honestly exercised. {ithe appellants could prove any facts tending to show that the ity was not so exercised, such facts would come within ile meaning of r. 64. But the proof of dishonest conduct on the

that the respondent had notice of the dishonest conduct, it is quite mmaterial that he benefited by it. If the fact proved here that the then manager, Wilkinson, had, in making this

any participation in the benefit so fraudulently obtained. But, itis said that, as the respondent did derive benefit from fe dishonesty of the agent, the rights of the appellants under

of the plaintiff, that fraud must be specially pleaded. Well, cannot assent to that proposition. It appears to me that, if the etof authority is a matter to be proved by a plaintiff, a defendant 'Seatitled to give in evidence any facts which show no authority, fmm though one of the facts may be fraud on the part of agent. If those facts also show a fraud on the part of the thintif, that circumstance cannot deprive a defendant of his right Sst up the defence of want of authority under r. 64. Thave been dealing with vr. 64, because it is upon that rule theappellants rely for their right to set up their answer to Tepondent's case. But it is really under r. 67 that the "pndent has contended that there ought to be a plea of fraud I before he can succeed in that contention, he must be

toshow that the facts here take the ease out of r. 64 von, 30

to the respondent under his allegation of a contract H.C. or A.

and bring it under x. 67. Now, what is the governing id of the latter rule? The rule is: [His Honor then read the and continued]. 'The governing idea is that there must be special plea wherever the contract alleged is admitted to haye been made in fact, but there is some reason based eitheron lay o- upon the principles of equity, why the defendant should be bound by it. There is no mystery about the words fession and avoidance." It is a perfectly well-known exp "Confession" means admission, and "avoidance" means a sate ment of reasons why, notwithstanding the admission, the defendant isnot bound. It therefore seems to me that the first element whith must be present in any pleading in order to bring it under 67 is an admission of the statements of fact made in the pattiela pleading to which it is ananswer. If that rule were to be apple here, it would be imperative for the appellants to admit that they made this contract. But they donot admit that. 'Their ease sth they did not make it; that there never was any such eontret on their part, because they say that one of the subsidiary fuels which are essential to the existence of the contract cannot be proved by the respondent. It appears therefore on examinatim that r. 67 is quite inapplicable to the state of affairs discos in this case, and I am of opinion, agreeing with my lama - brothers, that the facts here alleged, and which the appellants - claim to be entitled to give in evidence, amount to sueh a defeat as may be given under the plea of non assumpsit.

I am of opinion therefore that the evidence tendered ought have been admitted.

With regard to the amendment. I will only say this. We ha not before us all the facts which were before the leaned J in Chambers or the learned Judge at nisi prius. Both of refused to allow the amendment. But I think there can be doubt as to the general rule applicable to eases of amen viz., that wherever an amendment can be made, without prejudice to the other party as cannot be compensated by imposition of terms as to costs or otherwise, the amendment o to be allowed, especially in cases of this kind, where, if the relied on cannot be given effect to as a defence, it is very ditfealt see how they can be given effect to in any way at all. 'There

jose to allow these facts to be put before a jury would H.C. or A. to a very large extent, to deprive the appellants of the 19% _ortunity of ever at any time setting up what appears to have - tyssour if the appellants are right in their facts,a palpable fraud on B88, & Co.

ino. tof their agent and collusion on the part of the respondent.

iuestion whether the amendment should have been allowed

Appeal allowed. Order appealed from dis- charged. Respondent to pay the costs of the motion for a rule nisi and of the appeal. Costs of the first trial to be costs in the cause. Money paid into Court by the uppellants as security for verdict and costs of the first trial to be repaid to appellants.

Solicitors for respondent, Shipway «& Berne. CA. W.

NEW SOUTH WALI payment of costs* of appeal - New trial - High Court Procedure _ Aet1903 (No. 7 of 1903), sec. 26 (b) - Rules of the High Court 1903, Part I., | Onder XXXV., v1,

Anorder for payment of the costs of an appeal is an order for the payment.

_ Alinmey to some person within the meaning of Mules ofthe High Court 1903, Ge Pat L, Order XXXV., x. 1. i