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Colonial Cases

Oriental Bank Corporation v. Yen Cheong, 1864

[banking, fraud]

Oriental Bank Corporation v. Yen Cheong and Wye Kee

Consular Court, Hankow
14 May 1864
Source: The North-China Herald, 4 June 1864

WE are to-day able to lay before our readers a report of the action recently brought by the Oriental Bank Corporation before the British Consular Court at Hankow, to recover the balance of Tls. 68,000 by which the bank is still a loser through the defalcation of the compradore.  The wording of the security chop is so singularly free from any condition or qualification, that we should have been surprised at the attempt to defend the action, had not the singular anomaly of a Chinese subject allowing himself to be sued in a British Consular Court paved the way for any other eccentricity which might crop up in connection with this interesting case.

Chinamen are not wont to be so accommodating, and Yen-Cheong must either have been penetrated by a complete conviction of the justice of his cause, or by a profound admiration for the intelligence of British lawyers, to venture before a tribunal where nothing but palpable proof that his promise was secure was no security, or an ingenious legal quibble if the agreement were formal, could avail him.

Even now, we imagine, the judgment of the Court is not worth the paper it is written on, if the defendant decline to act in accordance with its tenor; unless indeed the Chinese authorities see fit to adopt and enforce it.  In the meantime, however, no symptom is shown of any intention on the part of the defendant to avail himself of the loophole for escape offered by his nationality; he has appealed the matter to Sir Frederick Bruce, and will we presume in due course be informed that the appellate authority has confirmed the judgment of the inferior Court.  Notwithstanding the ingenious pleas put forward for the defence, the case appears to lie in a nutshell.

Either the individuals who signed the security chop intended to imply that they would be responsible for any defalcation on the part of the compradore, or they did not.  If they did, and this was shewn to the satisfaction of the court, the aggregate talent of all the barristers on the tolls could not secure a judgment of a different tenour from that arrived at.  The document does not contain a shadow of limitation or qualification of the security, which contemplates the fullest responsibility for any "fault or error" of which the defendant may be guilty.  The only doubt that could possibly arise is, as to whether the words "fault or error" were intended to convey "pecuniary defalcation," and this is settled in the clearest manner by the testimony of custom and the intention of the parties to the agreement.  No reasonable doubt can exist that the manager of the Oriental Bank and the securities, when the agreement was signed, was that the latter were to be responsible for the honesty of the compradore, and that if he proved dishonest, they were to make good the sum for which he might defalcate.  This being once established, the singular barrenness in the wording of the agreement debars the possibility of entertaining any attempt to prove that its provisions were broken by the plaintiffs.  There were no conditions or stipulations, the securities rendered themselves fully and completely responsible without limitation or reserve, and in the words of the plaintiff's counsel, the most gross negligence on the part of the bank would be covered by the guarantee.  That this negligence existed, though not to the extent contemplated buy the defendants, appears clear. 

Mr. Webster repeatedly said in the course of his cross-examination, that the accountant's duty was to "give out and take in treasure," "to see money taken out of the treasury, and then to see the treasury closed"; and it is obvious that if this had been done, the compradore would not have had opportunity from time to time to abstract monies as he was in the habit of doing.  Butr again, as Mr. Pollard remarked in reply to Mr. Cooper's accusation of negligence, business could not be conducted unless some trust were reposed in him.  It is well, in theory, that a rule should exist that an accountant should be present on every occasion that money passes into or out of the treasury, butr, in practice we imagine little time would be left him to look after the books of the bank, if he followed it to the letter.  On the other hand, however it is evident that some supervision is necessary, and we shall be much surprised if the Bank compradore be not, before long, reduced to the position of a simple shroff, and the charge of the treasury placed in the hands of a European cashier.

 

Source: The North-China Herald, 4 June 1864

H.M. CONSULAR COURT.

HANKOW, 14th May, 1864.

Before J. A. WEBSTER, Esq., H.M. Consul,

K. R. MACKENZIE, JOHN ASHTON, Assessors.

THE ORIENTAL BANK CORPORATION,

Versus

YEN CHEONG and WYE-KEE.

Mr. E. H. Pollard appeared for the plaintiffs.

A.D. Cooper for the defendants.

The following is a copy of the plaint.

PLAINT.

In the cause in which the Oriental Bank Corporation of Shanghai is plaintiff, and Yen-cheong and Wye-kee of Hankow defendants.  At H.B.M. Consulate at Hankow the 13th day of May, 1864.  The plaintiff comes before me John Aplin Webster, H.B.M. Acting Consul at Hankow, and says as follows:

That in consideration that the plaintiffs would employ one Fung Heen as their compradore at the Shanghai branch of the said corporation (known as the Lejoo Bank in Shanghai), the defendants guaranteed and promised the plaintiffs that they would be answerable to the plaintiffs for the trustworthiness and honesty of the said Fung Heen, and would be responsible for any fault or error of the said Fungi Heen, and the plaintiffs employed the said Fung Heen as such compradore as aforesaid, and during such employment the said Fung Heen embezzled or otherwise feloniously took or abstracted from the treasure of the said plaintiffs at Shanghai Taels 131,726.12.0, the monies or property of the said plaintiffs. And all conditions were fulfilled and all things happened and all times elapsed necessary to entitle the plaintiffs to maintain this action.  Yet neither the said Fung Heen nor the defendants paid the plaintiffs the last mentioned sum to the extent of Shanghai taels 68,232.0.0 and the same still remains due and unpaid.  And the plaintiffs claim Shanghai Taels seventy-five thousand.

The Oriental Bank Corporation, by their attorney. (Signed) JAMES WEBSTER, Acting Agent at Shanghai.

Taken before me at the time and place first above written. (Signed) J. A. WEBSTER, Acting H.B.M. Consul.

A certified translation of the security chop by Dr. Legge was produced and agreed to by both parties, which ran as follows:-

This is to certify that Fung Heen of Hwong-poo in the district of Pwan-yu has been engaged as keeper of the Treasury account for the Le Joo bank at Shanghai.  Should there be any fault or error trhe securities are entirely responsible.

Hien-fung, 11th year, 5 moon, 27th July, 1861.

Defendants objected that the loss alleged in the summons is not part of the indemnification contained in the guarantee.  Plaintiffs object that the grounds of defence are not specified.

Defendants propose as pleas.

  1. That the document was in effect a proposal which the bank had not accepted.
  2. Non-disclosure of material facts at the time the alleged guarantee was given.
  3. That alleged guarantee was rendered void by departure from the terms of it in the employment of the alleged defaulter.
  4. The alleged guarantee when given was given on the understanding that the bank would conduct the treasury business in a regular and proper manner, and that by reason of gross negligence on the part of the bank, the loss thereby entailed was now claimed from the alleged securities.
  5. That the bank had abandoned the agreement by resorting to the principal debtor instead of to the securities.
  6. That the bank had given time to the Compradore without the knowledge or assent of the securities.
  7. That the bank could not sue upon the alleged guarantee, as it was not delivered to the bank.

Mr. POLLARD addressed the Court for the plaintiff, to the following effect.

The Bank was at a disadvantage as to line of defence; affairs would have been simplified if this had been known.  The Oriental Bank Corporation having in their employ a shroff called Fung Heen at Shanghai, he and his friend applied to appoint A-heen (the defaulter) to be compradore, some time in June 1861.  The bank intimated to the securities that they would advance the man to be compradore if they had good security for him in every way.  In July the same year the securities came and told Mr. Lamond, the manager, that they were prepared to secure the compradore entirely, and Mr. Lamond agreed to accept their securities.  The securities were drawn up by the sureties themselves and duly signed and witnessed.  They then handed it over to Lamond, saying that they were entirely responsible for any violation of the duties.  Lamond then had Fung Heen made compradore in July 1861, and he remained in that capacity until January last.

Mr. Webster eventually came to Shanghai and took charge of the Bank.  Mr. MacDoual handed to Mr. Webster an account of the state of the Treasury.  The compradore witnessed this.  There were two keys and one crank for the Treasury.  The manager had one key, accountant one, the compradore had the crank.  One cannot enter without the other two.  The treasury was inspected in the ordinary way about once a month by counting the boxes, &c.  The compradore was responsible for the nature of silver, &c., coming into the bank.  He always is unless the head of the house knows Chinese &c.  This is the duty especially of the compradore.  The manager accepting this man's statement as to the silver keeping a check on him by counting the boxes, &c.  It is only occasionally that the money is really counted minutely.  Still dependant upon the compradore as to the value and weight of silver.

This plan went on till December last.  Owing to the increase of business, difficulty in examining was increased, and counting the boxes was the only means of examining.  Mr. Webster, in December, had as careful examination of the silver.  The inspection was commenced in December last, when the compradore asked to see Mr. Webster. (exception made by the defendant to this evidence but overruled b y the court.  Statement of defendant also to be received, value of each to rest on their own merits,) and told Mr. Webster that the treasury was short because he had taken 38 boxes of sycee.  Webster asked how much that was, and the compradore said about 138,000 taels/

The Compradore made out a statement showing that he was short 131,726.1.2 in sycee and 4,000 in Mexicans.  After this the strafing of the treasury was proceeded with, the balance was arrived at after many days, and the statement of the compradore was fully borne out, in fact his statement was rather more than the fact.  Subsequently the compradore made over several properties which were taken over by the bank, viz: 63,404. 1.2 taels, leaving due to the bank 68,232 taels.  This amount is what is now sued for.  I now hand in the statement of trhe compradore in his own handwriting, showing the deficit of 131,726.1.2.

Points for the Plaintiffs are four.

1. Existence of guarantee being one of security for the fidelity and honesty of the compradore.  The securities being responsible for any loss incurred through want of said honesty.

There has been a breach of his duty as compradore, he has stolen or abstracted 130,000 taels odd, this is the breach which makes the securities responsible.

To prove the amount of loss incurred by the bank.

1st. - The law on this point is simple; decision to be regulated by the spirit of the parties at time of contract.  The text, not what the two parties themselves meant, but what they each meant the other to understand (extracts in support read) this applies to English and more especially to non-cognate languages.  The document given is not in the language of the plaintiffs, they explained to Mr. Lamond the meaning, and their explanation of the meaning binds them, as shewing the sense they wished Mr. Lamond to take of the question.

As to the 8th point, action must be brought in the name of the person to whom the security is delivered, reason is because there is no priority between 2nd holder and principal.

Only held by a person to whom the document is given.  In this case the security was given to the Oriental Bank Corporation, and only affects Mr. Lamond as signing for the Oriental Bank.  The party principally affected is the party to sue. (Translation of security produced).  The security was evidently given to the bank, not to Mr. Lamond, note the fact - the only fact, that the man is a trustworthy man; that was the representation of the sureties themselves.  The faults or errors, evidently the faults or errors of trustworthiness.  Not wishing to count faults of management only faults of fidelity or trustworthiness, this is fraud.  Only claim the sum this man has abstracted from the bank treasury.  Stole it in fact, and a balance still remains due.

1 & 2. - Employment in this case is acceptance - the surety is one side of the contract and the employment of then man is the other side.

3rd.  Can't understand this, it is customary for the compradore to have access to money under certain restrictions.  The bank appointed him compradore to the bank and thus gained him access to the cash.

4th. - Only obligation was employment, and this was carried out.  He every day turned the crank and acted as compradore, and as to what else he did, it did not concern the bank.

5th. - Ingenious and difficult to answer - the only point would be, if the bank refrained to take precautions against - this cannot be, as the man was specially secured, that the bank was relieved from watching.  The most gross negligence would be covered by the security.  If want of honesty can be proved in spite of negligence on the part of the bank - the sureties must be held liable.  Business cannot be conducted without trusting the man.

6th. - As to this point I reserve answer for reply.

7th. - No time was given; the compradore levanted on the 4th and came back on the 6th, when he was seized by the Consul. - Reply to this also in answer.

8th. - Already answered.

We will cite a few dictates of law for guidance.  Sense and spirit of contract to be observed even in opposition to the wording of it.  The meaning of the term compradore caries in various houses; intention of the contract, evidently to let the man act as compradore; duties supposed to be known to both parties.  Many merchants are in the same position as to sureties.  The contract is to be read as to the apparent object - and it must be more to carry out such object.  The recitals must be taken as shewing the object.  The words in the recital, if they don't mean compradore, must be held still to mean compradore to carry out the object.  Security in this case entirely as to trustworthiness, his skill and capacity for work is not alluded to in the contract.  No honesty of trustworthiness could exist, if no trust was put in the man.  Any part of the contract not agreeing with their intention must be rejected, and that part supporting the intention to be accepted.

The contract was made in Hongkong, not in China, and the money was to be paid there.  Verbal evidence as to the meaning of a written contract not acceptable in general, but is accepted in case of terms used with a special and particular meaning or in foreign language; note a promiseur seeks to evade a promise, his own records are to be read most strongly against him, against the granter of the deed, because he had the power to define his liability and because he did not do so, he is liable for not protecting himself, and the deed is toll be read against the grantee.

JAMES WEBSTER being duly sworn to speak the truth, states: - I am acting agent for the Oriental Bank at Shanghai since the 18th December 1862.  In July 1861, I was accountant in China, residing at Hongkong.  I saw a document of which trhe one produced was a copy.  I put m y name to it.  I saw it signed by the defendants.  I was present at the interview at which the document was signed, not at any other.  Mr. Lamond was there, the securities and Mr. Maclean.  I think Mr. Lamond in the presence of us all, stated to them of the document in pidgin English, and I understood the two securities to assent to this.  He stated that these two men were about to become securities for Fung-heen, about to be appointed compradore at Shanghai, and that they were becoming bound for his honesty, (this is what I recollect of what Lamond said in pidgin English) in the capacity in which he was going to be appointed, viz: as compradore in the Li-joo Bank at Shanghai.  The men assented to this and seemed to understand, as far as I could see, the liability they took on themselves.

I am certain that I have given correctly trhe purport of what passed, if not the words.  I witnessed the signature, the document was handed to Mr. Lamond then manager of the Oriental Bank Corporation in China.  The document was forwarded to Shanghai, or rather a copy was.  As accountant in China I saw the accounts of the Shanghai Branch and I know that after that A-heen acted as compradore to the Branch at Shanghai.  He was not a compradore when the document was sighed.  When I arrived in November 1862 at Shanghai, A-heen was compradore.  I took over the treasury on the 18th November from Mr. MacDoual.  Mr. MacDoual called the compradore A-heen and asked for a statement of the cash - it was brought and checked by MacDoual who handed it to me, and here is the statement.  I went in to the treasury after MacDoual and counted the boxes with A-heen. (handed in marked B.)  A-heen writes English.  All the boxers I could get at I opened and found them to contain 60 shoes each; the treasury was nearly full.  I took a box as 3,230 to 3,240 taels Shanghai sycee.  This was always one way of counting the treasure.  The compradore bolted the door with a crank - he kept the crank constantly.  The accountant had one key and I had the other lock key.  No two of the three could get in without the third. 

First thing I do is to unlock the outer door in the morning.  If any money is wanted the door is unlocked and the money taken out of the treasury, if the accountant was satisfied, he then authorised the compradore to take out the money.  At the end of the day the compradore brings the vouchers to the men in charge of making up the cash book, the c ash book is then written up from the vouchers. The compradore brings a statement of balance of the money that ought to be in the chests at the close of the day, and this is checked by the compradore with the cash balance which ought to be in treasury.  The Comprador's duty is to being any money that is over at the close of the day and place it in the treasury, this is the usual way and had been done so by A-heen.  The general balance of cash is shewn to the manager every morning and is compared with the accounts.  There is a record kept of the balance in a book, called the treasury balance book.  It is part of the manager's ordinary duty to require a statement from the compradore constantly as to the balance in the treasury. 

I did this regularly once a month and usually during the month.  He used to hand in similar documents to the one already handed in.  I had one in dated 19th December 1863, to show the form in which this is usually done.  I received this on 19 December (marked C.) he handed this to me as a statement of the actual state of the treasury.  When I got this statement, I went to the treasury and counted the number of boxes, being of dollars, and found them to agree with the number stated in the statement, the amount of money also agreed with the balance book.  This one [C] is the last he handed in until the 28th December.  There are some amounts (marked in pencil on the paper C) not held in bullion.  I recollect the 28th December I gave orders to take out 150,000 taels.  I gave orders to the accountant in general terms to have the money shroffed.  The operation for the mail of the 26th December had lowered the cash balance in the treasury, that it could be easy to take stock.  When part of the amount had been taken out, as I was passing the treasury, the compradore A-heen came and wanted to speak.  I took him upstairs, as there were a number of people in the office, and he stated (exception taken but overruled by the Court) that he had taken from the treasury 38 boxes of sycee.  I asked him if he had any idea of the amount this represented - he  said, yes 125 to 135 thousand taels; I asked him to get the exact amount and he  said he would on reference to his books - I sent him down to make out a statement of the c ash.  He did so that afternoon, (28th December) it was a statement of what then ought to be, and what was short.  This shews a deficit of 129, 748.2 Shanghai taels and 3,999.78 dollars (in 8 pieces).

I sent for the accountant Mr. Ricard and told him about this, and when the compradore brought up the statement he handed it to both of us, and when we asked him if he was sure of this, he said yes, I have taken 129,000 taels and 4,000 dollars.  (Exception taken but overruled by the court.)  He told me that he had taken out the treasure from time to time as opportunity occurred when there was pressure of business.  The only immediate step I could take was to go to the treasury, where I found 35 or 38 boxes empty, which ought to have contained sycee.  8 of these boxes contained copper cash - but the rest were empty but were all lidded as usual and piled up.  As soon as I had shroffs I made a more careful inspection.  The compradore's key was given to the 2nd compradore and Mr. Ricard and myself retained our leys. The examination, when I got shroffs was carried on with closed doors, in a room adjacent to the treasury.

The result was a deficiency of 129,356.1.2 taels ascertained on the 16th January, 1864.  This made a difference of 2,370 taels on the former account of the 28th December.  This deficiency was in no way authorised or in any way incurred by my authority.  I was in n o way part of it, I did not know of it.  I hand in (D) - a statement of the actual state of the Treasury on the 16th January, on which date the examination ended.  I gave information on the 4th January to Mr. Markham, stating that the compradore was a defaulter for a considerable amount, and asked him what step he thought I ought to take.  On the 4th January, the same day, A-heen absconded between 12 and ½ past 1.  I next saw him on the night of the 6th, he came back to the bank, and said he was not safe out of our bank. He stayed there all night.  Next day I reported this to the Consul, who sent a constable for him, since then he has been kept in custody.

I have received back about 63,000 taels - part in money, part in land, according to valuation of the compradore. The documents were handed by the compradore to me, to send to the Consul, to get the Taotai's seal on them.  The balance left is [part column very faint] .......................

...................................................................................................................

With regard to portion of money received for the Bank, it was not from the settlement of A-heen, but from the steps taken by one of the securities of A-heen who came from Hongkong for the purpose.  I have never applied to A-heen for the payment of this amount.  He applied between the 28th December and 2nd January, to give him time to repay it; this I refused to do.  I have never relieved him from any obligation he might be under to the Bank, so that anything he gave was in reduction of the debt and not in extinguishment of it

Cross-examined by Mr. COOPER: - I was sent from Hongkong by the inspector to conduct the business of the Shanghai Branch.  I considered that I understood my duty as acting manager.  I was sent from Hongkong as acting manager.  I gave no security when I entered the Bank; I had a guarantee by a mutual guarantee society.  I took my duties from my predecessors Mr. Lamond and Mr. MacDoual, their custom was to inspect the treasury monthly at their discretion.  I should think it not necessary to inspect the silver in the boxers.  It is the accountant's duty to see the treasure taken in and taken out.  It would be impossible for me to see it done myself.  I am not always in the bank when money is taken out.  The accountant's duties are to give out and take in treasure.  He locks the treasury after having taken out any money. There is no particular rule to that effect, it is the usual custom I believe.  The compradore's duties are to receive and pay monies, and to do generally what he is told.  It is not his duty to keep books by the bank.  He is required to give an account of the money when called on to do so.  He was not required by me to keep any accounts - there were books kept in the compradore's department.  I cannot tell what books the compradore kept at the bank.  I cannot read Chinese and so cannot say what the books contained.  There is a cash book kept founded on the vouchers.  The accountant keeps it and he gets his information from various people; it is his duty to compare the daily balance with the compradore.  The compradore kept some books, I don't know what.  It is the duty of the compradore to keep an account of what money goes our or comes into the bank.  He is called upon every night to give the result of the day's operations.  That result is given to Mr. Ricard or any one who is making up the cash book.

I used to turn my key in the treasury every morning.  I did not necessarily go again to the treasury during the day.  Accountant's duty is to see money taken out of the treasury and then to see the treasury closed.  The treasury is about 12 feet by 10.  I cannot say exactly.  That treasury contained all the bank's money at this time.  There was no reserved treasury.  Compradore, one shroff or any number of coolies may be required to take out the boxes, go in.  A-heen had an assistant; the shroffs are selected by him and paid by the Bank.  There are no Europeans in the treasury as a rule.  It is the duty of the accountant to see the treasury closed.  The treasury to my knowledge has never been left open for the whole day.  The object of the monthly inspection is to certify to the correctness of the monthly returns.  I never inspect the contents of each box.  I don't know that my predecessors had done this.  I felt certain that the money was there, and so certified to the amounts.  The treasury account was kept as far as I understand by the accountant, giving out what was required during the day.  The balance of one day on being ascertained was carried on to the next day, and the balance as found by the compradore, checked by the vouchers, was carried forward.  I understood that certain books I was shewn gave particulars of what was paid out or what was paid in, I know noting of the entries in Chinese books, or act upon them.  There is simply a comparison of balance between the accountant and compradore.  I keep a cash account shewing how the treasury stands from day to day.  I get the cash account from the day book.I know that it is not the practice for bank managers to look at the boxes of silver.  The Commercial Mercantile Bank and Commercial Bank don't do so.  I don't know how the Chartered Mercantile Bank carry on the working of their treasury - in mine, it was too small to be able to view it easily. 

No representation of any mind as to the treasury was made to the securities.  No such words were used as to the sureties being security for the whole amount at any time in the treasury.  No such enormous fraud could have been contemplated.  Three keys were for the protection of the bank and all others.  I can't tell how the fraud has been committed.  There was only the accountant's check.  No special line of inspection is laid down for me.  I satisfied myself that all was right by looking at the contents of such boxes as could be seen.  It was impossible for me to examine the treasury once a month; we had not men to do it with.  I did not know of the defalcation before the 28th December; that was the first I heard of it.  I took no immediate action, as I did not know how the matter really stood.

On the 28th December I heard of certain transactions of the compradore, that induced me to think of inspecting the treasury.  (While you were manager at the Oriental Bank Corporation at Shanghai, did you buy a large quantity of cotton? - I bought cotton, but not as manager of the Bank.)  A-heen bought for me.  I had no joint transactions with A-heen as to the purchase of copper .................................................................................

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I furnished particulars of the claim in February.  ........... I had no official plaint against A-heen.  I don't remember if Sir H Parkes wrote and told me that he would have nothing more to do with A-heen.  I had instituted no civil suit against A-heen, or criminal one either.  I requested to have A-heen kept in the consulate jail, instead of being sent to the Chinese authorities.  I never informed the securities of what I was doing.  I believe I gave some papers to Mr. Mayers, purporting to be A-heen's account of his assets.  I cannot remember exactly about this paper.  Some I have realized, some I have not.  The statement in Mr. Cooper's hands is what A-heen stated.  I cannot vouch for its correctness.  I have not sold the Maloo grounds.  I don't agree to take these assets at the valuation marked in the list (F).  I cannot explain the difference in the particulars of demand furnished by me.  It was prepared by Mr. Pollard.  I cannot point out one instance in which A-heen embezzled money before it reached the treasury.  A-heen confessed he had taken money and I saw the empty boxes.  I cannot say when the security was signed, whether the bank had resolved to appoint A-heen.  I saw him afterwards acting as compradore.  I don't know who wrote the original security, or when it was written.  I saw it signed.  I don't know whether it was prepared at the bank in Hongkong.  The chop was not read out in Chinese.  Mr. Lamond mentioned its signification to the men.  It is usual to see what you are taking before accepting securities.  I know nothing that would lead me to imagine that the securities meant otherwise than Lamond had mentioned.  Nothing was said as far as I know about A-heen having assistance.  His assistants are plaid some 10 and some 15 taels a month. 

The 1st payment was made between 28th December and 16th January.  I got a title deed for land before A-heen went to prison in December. I wrote to Hongkong about the losses of the Bank.  The answer I object to produce (by advice of my adviser.)  An inspector has been sent out from home to examine into these losses.  I have given no security for these losses to the Bank.  The Bank never required me to do so.  It has not been intimated to me that the Bank would hold me responsible.  I am still in the Bank.  The Inspector is now at Shanghai.

Re-examined by E. POLLARD.  The lowest book in the Bank is the English cash book.  I recognise no Chinese account books.  It is the compradore's duty to receive and pay all monies, and when he states that he has received or paid any, it is looked upon as a fact.  The compradore is placed to assist the accountant in handling money.  The amount is settled by the compradore's report of what it is.  In speaking of the accountant's duty I mentioned my opinion.  I don't know if he has received any instructions on the subject.  No sum was mentioned for which the two securities were responsible.  The compradore never bought or sold dollars without special instruction, and he was never paid for it.  I don't know about the other banks, but I have heard that it is the custom to buy and sell dollars in this manner.  As to the Hongkong compradore, I cannot say if he goes out to buy dollars or not.  The bank always paid for their transactions.  When I saw the empty boxes, they were piled up in a corner of the treasury, scarcely ever touched; they looked like full boxes in every respect.

E. O. H. POLLARD, being duly sworn to tell the truth, states: - I was called on by the manager of the Oriental Bank to have communication professionally with Wye-kee.  I had such communication. (Exception taken, overruled by the Court).  I shewed him the security chop on which we sue.  I asked him if he knew of the defalcation of the compradore at Shanghai; he said yes, he knew that he was short in his cash and that he had lost a good deal of money in cotton contract that A-heen had promised Yen-cheong and him when they signed to become his securities, to let them know all his speculations and dealings, but that he had concealed the losing speculation from their knowledge.  I asked him if he knew that he was responsible, he said yes, that he and Yen-cheong must make it good.  Still in course of my professional duty I had another interview with Wye-kee, a brother of A-heen, compradore to John Bird & Co., Hong-que.  Wye-kee gave up the value of a certain property belonging to A-heen in the Kwang-tung province, and took part in negotiation which resulted in A-heen's brother paying up $15,000 as the value of this property.  I also requested Mr. Lamond to send up his Hongkong compradore to Shanghai, to get in and realise as much as possible of A-heen's property, in order to lessen the liabilities of the sureties.  I saw the compradore from the Bank and was told that he had gone to Shanghai.  Wye-kee said that when this man came back that they could be settled.  On last Saturday evening, A-heen came back to the Bank in custody, and then admitted to me in words that he had taken this money from the Bank.

Cross-examined by Mr. COOPER. - I can't mention exactly the date of the conversation.  I had heard that the compradore had availed himself of his position and had abstracted money.  I did not recommend the securities to get professional aid.  I can't say if the money was abstracted or embezzled.  I did not know when I spoke with Wye-kee.  I proposed to Mr. Cooper that if he would get good securities for the amount, I would accept them less 15,000 taels.  Mr. Cooper said that for the interest of both parties it was better to have securities.

JOHN G. RICARD, being duly sworn to tell the truth, said: - I am accountant in the Oriental Bank at Shanghai.  I recollect the 28th December last.  I was present with Mr. Webster when the compradore handed in the statement (D).  The compradore admitted that he was short.  I think he used the word short, he left the impression on me that he had taken the money from the treasury.  I afterwards took part in the inspection, and found the state of the treasury agreed almost entirely with the compradore's statement.  The cash book is kept by the Assistant Accountant.  The compradore settled every night with the Assistant Accountant. The cash book is the lowest book.  The balance shewn in that book is the same as shewn in the treasury account book.  I have been accountant for a year. 

When money is wanted the compradore comes to me and I enquire into it and hand out the 10 or 20 boxes he wants.  I always stood by while he took it out.  In taking in the money I counted the boxes and I estimated roughly.  At the closing of the day I stand and see the boxes put into the treasury.  The boxes are laid out on the floor and I look at them and see that the silver is there.  I have done this truly since I have been at the bank.  When I have seen the silver the lids are put on again and the boxes are put in the treasury.  I sometimes can't see all the boxes lying on the floor, but to the best of my ability, I saw every box that went in or came out of the treasury.  There is a custom of checking the treasury once or twice a month, sometimes with the manager.

Cross-examined by Mr. COOPER: - There are 7 China clerks in the treasury.  Compradore's duty is to put the sycee in the treasury.  I believe he takes an account of the shoes, narks, numbers, &c.  Mistakes may have been made occasionally in the [finish?] and weight.  I am present when the silver is put in the treasury.  I keep a key.  The compradore could not get in without me or Mr. Webster.  I lock the treasury when the money is put in.  If any is taken out the door is locked immediately after it is taken out.  I can tell by what is taken in and what is taken out what is in the treasury; not exactly, as some boxes vary, but approximately.  I don't remember any of the boxes having been broken open in December last.  I was not in Shanghai till after Mr. Webster took charge.  I can't account for the defalcation at all.  Last December we found a number of boxes empty.  I don't know how this was, they may have been placed there before I came.  Monthly account is taken to satisfy the manager and people at home that the accounts are right.  It was impossible to see some of the boxes, we believed the boxes contained sycee. 

I don't remember a thorough examination till the 28th December.  It would have taken two days to take all the money out and put it back again.  The accounts are balanced on the supposition that the money is right and from personal inspection; subordinates must be trusted in a certain measure.  We examine to the best of our ability generally the upper tiers of boxes.  A-heen went into the treasury in my presence, I never left him alone there.  30 or 40 boxes could not have been abstracted.  Mr. Pollard here produced a portion of a letter from Johnstone Smith, detailing the proceedings at the consulate of Hankow and closed his case.

Defendants object that plaintiff's case is not proved: that the defalcation, if any, took place from time to time as opportunity offered, which could not, according to the plaintiff's witnesses, have happened in 1862 and 1863 or subsequent to the guarantee.

Court adjourned to Monday, the 16th May.

 

16th May.

Mr. COOPER addressed the Court for defendants to the following effect

1st. - The guarantee until accepted was only a proposal (2 Pitman, Principal and surety, 29 and 31).

2nd. - Yen-cheong could not sue the Bank upon it, because they have never accepted it under seal (S????. vs. London Dock Co. cited in Roscoe on Evidence, page 726.)

3rd. - Guarantees must be construed strictly; surety is always protected from liability beyond the fair import of the actual words of his agreement (Pitman 34, 36 and 37, Parsons on Contracts 503 and 507 - 26 Law Journal Exchequer page 116-27.  L. I. Queen's Bench 476,477.  Chitty on Contracts pa. 464, 471.)

The document in this case is at most an undertaking against loss to the Bank through fault or error in keeping the Treasury account.  Neither party ever contemplated that the sureties were to be under responsibility for the Bank Treasure deposits, &c.  The compradore was not and could not be intrusted with the keeping of the Treasury in the course of his duty.  The agreement is so loosely worded that the sureties would not be held liable even if the compradore had embezzled moneys passing through his hands in course of business because faults or errors, do not in the English language include crimes or criminal offences.

4th. - If this paper or guarantee was to include and cover the custody and security of the whole of their deposits in the back treasury from time to time, the sureties are not liable, because this was never communicated to them at the time or afterwards. (Tudors Leading Cases in Equity, pages 819 and 821 - Harrisons Digest, p. 3485 - Pitman page 215); moreover in this case the Bank did not follow the dictates of ordinary prudence in keeping a reserve Treasury.

5th. - Then the guarantee here whatever its worth could be considered, has become void by departure from the terms of it, for the slightest alteration in the duties to be performed discharges the sureties; they are entitled to have the agreement performed in the most perfect good faith. ................................faint print ......................................................

Here A-heen was employed as broker for the Bank, his duties had become that of principal and agent, as well ass of master and servant.  He was allowed control of the treasury ad lib. and had speculations with the Manager.  If he had not been employed by the bank in purchasing and [disposing?] of dollars, he would not have fallen into temptation to make [time] bargains], and taking the circumstances altogether, the sureties'

Reasonable ground of reliance upon the proper relation, as between master and servant, was entirely set aside by the bank.

6th. The loss in this case was in fact a robbery of the treasury from time to time not the appropriation or embezzlement of moneys passing through his hands in the course of his duties.  It e\was the result of the most gross negligence on the part of the bank and but for this no loss could possibly have happened.  There were 3 locks and 3 keys, all different, and unless there was negligence, or all three parties conspired to rob the treasury it could not happen.  The treasure should be seen when put in and when taken out, and the cash account examined and compared daily.  This was the proper and regular course of business, but never followed during 1862 and 1863.  In these circumstances the sureties were exonerated and completely absolved from all liability (vide judgment. by Vice Chancellor [Wood] in [Duncan and Lavers] 23 Law J. 441, where sureties were discharged through gross negligence.

7th. - The again all grounds of claim or any right of action in this case is lost by the fact of the bank having in the exercise of its discretion, violated the agreement of guarantee which expressly provides that they are responsible for any faults or errors in keeping the accounts.  Here the bank has thrown A-heen into prison, destroyed his credit, taken and used as it thought best the whole of his property, without even consulting the surety, and in truth they have deprived Yen-cheong of the only ground reserved for the securities' protection.  They might have made arrangements before A-heen's credit was ruined, but now he is left without a friend and his property taken away. (Vide Tudors L. C. pas. 820 and 821.)

RICHARD H. CHAMBERS stated: - I recollect coming down to this Consulate with Yeng Cheong.  He did not state he acknowledged his liability as mentioned by Mr. Smith.  What he stated to the Consul under my advice was that he would not acknowledge his responsibilities before hearing more about the case from Shanghai.  I had written myself for Yeng Cheong to Hongkong at this time, with a view to resist this claim if the facts were what I had heard.  I did this for the protection of my servant, as I felt dissatisfied at what I had heard.

Mr. Pollard replied.

The Court delivered the following judgment:-

That the guarantee is binding on the defendants and that they pay to plaintiffs the sum of 68,232 taels.  Each party to pay their own costs.

Published by Centre for Comparative Law, History and Governance at Macquarie Law School