1. This is an interpleader suit brought by the Bombay Steam Navigation Company to determine the question of title to 135 bales of cotton in their hands. The first defendant firm claimed that they were entitled to stop the goods in transit as the unpaid vendors of the consignee, the third defendant. The second defendants claimed delivery as the holder of the;railway receipts given by the Madras and Southern Mahratta Railway Company for the goods which had been endorsed to the second defendants by the consignee to secure an advance of Rs. 15,000.
2. Ramdas Vithaldas Durbar and Jivraj Vussonjee, the partners in the first defendants' firm, were carrying on business as commission agents at Bagalkote in the Bijapur District.
3. Defendants 3 and 4 were carrying on business in cotton at Bombay, Bagalkote and other places.
4. At Bagalkote the cotton season commences in April and continues till August. There were business transactions in 1909 and 1910 between the first defendants and defendants 3 and 4, but I am not concerned with those.
5. At the commencement of the cotton season in April 1911 the defendant 4 went to Bagalkote and the nature of the dealings which ensued between him and the first defendants was as follows :-
Defendant 4 selected the cotton he wished to purchase. The first defendants paid for the cotton and took delivery. The cotton was ginned and pressed at the factory of Ramdas Vithaldas and then consigned by the first defendants to defendant 3 in Bombay. The railway receipts given by the Railway company were handed over to defendant 4 who despatched them to defendant 3. From time to time defendant 4 drew hundis payable at sight on defendant 3, which he gave to the first defendants; the first defendants sold the hundis to shroffs in Bagalkote who sent the hundis to their Bombay correspondents for collection.
6. During the season 1911 cotton to the value of over Rs 4, 16,000 was thus purchased by the first defendants on account of the defendants 3 and 4.
7. First defendants charged a small commission for their services which amounted to Rs. 1200 or 1300, and in addition ginning and pressing charges were payable to Ramdas Vithaldas. The 135 bales in suit formed part of 503 bales which the first defendants sought to stop in transit by their telegram of the 5th August to the plaintiffs.
8. The following railway receipts had been given by the. railway company for these bales. Railway receipts for 119 bales dated the 20th July; railway receipts for 74 bales dated the 22nd July; railway receipts for 73 bales dated the 24th July; railway receipts for 100 and 35 bales dated the 28th July; railway receipts for 102 bales dated the 2nd August. Of these consignments, the first two lots had already been delivered before the telegram of the 5th August was received. The lot of 73 bales formed the subject matter of suit 670 of 1911. The 135 bales are the subject-matter of this suit.
9. The railway receipt for the 102 bales was endorsed back to the first defendants by the third defendant.
10. First defendants sent the telegram of the 5th August because they heard that the hundis drawn by defendant, 4 were not being met on presentation.
11. On the 5th August the following hundis drawn by defendant 4 had been presented to defendant 3 in Bombay and had not been paid.
12. Hundi for Rs. 1,500 dated the 25th July, Ext. A. Hundi for Rs. 1,000 dated the 26th July, Ext. B. Hundis for Rs. 10,200 dated the 27th July, Ext. C. Hundi for Rs. 5, 200 dated the 28th July, Ext. D.
13. The persons who presented the hundis were told to come again in a few days. After the 5th August Jivraj Vussonji came to Bombay and the hundis were formally protested.
14. The case has been very much complicated by the fact that defendants 2 and defendants 3 and 4 have appeared separately and resisted the claim of the first defendants to stop the goods on different grounds. It will be simplest to decide first between the first defendants and defendants 3 and 4 whether the first defendants were entitled to stop the goods, and if this is decided in favour of the first defendants to consider next whether the first defendants are bound to satisfy the claim of the second defendants under Section 103 of the Indian Contract Act before they can get possession of the goods.
15. On the first question the first defendants claim that they had a right to stop the goods if the hundis drawn by defendant 4 were not honoured on presentation. It is admitted that the first defendants were not sellers within the meaning of Section 99 of the Contract Act, but that Act is not exhaustive and cannot deprive the first defendants of any rights which they had at common law. In the Great Indian Peninsula Railway Company v. Hanmandas ILR (1889) 14 Bom. 57 the consignors were acting in exactly the same manner as the first defendants in this case, and they were held entitled to stop the goods before delivery.
16. It is also clear that the goods were in the possession of the first defendants until they were delivered over to the Railway Company; there was no delivery to defendant 4 at Bagalkote and the goods were in transit at the time the notice to stop was received. The first defendants were, therefore, entitled to stop the goods in transit if they were not paid for and the defendants 3 and 4 were insolvent.
17. It is not necessary for the first defendants to prove that defendants 3 and 4 had been adjudicated insolvent or had committed an act of insolvency within the meaning of the Insolvency Act. It is sufficient if they can show that defendants 3 and 4 were unable to or had refused to meet their liabilities as they fell due in their ordinary course of business when the notice to stop was sent to the plaintiff. The fact that defendants 3 and 4 did not pay their hundis when presented would of itself give a right to stop in transit goods not paid for. It has been proved that defendants 3 and 4 had no funds to meet the hundis in question and have never paid them since. On the 5th August defendants 3 and 4 were clearly insolvent so as to give the first defendants a right to stop goods not paid for. But then the defendants 3 and 4 assert that as a matter of fact they had paid for the 135 bales in suit, and in order to decide this question it is necessary to consider what was the course of dealing between the first defendants and defendants 3 and 4.
18. It has been contended on behalf of defendants 3 and 4 that the first defendants agreed at the commencement of the season of 1911 to allow them credit to the extent of 15,000 or 20,000 rupees. It is quite possible that defendant 4 suggested to Jivraj that such credit should be given, but I disbelieve defendant 4 and his witness Punoosing when they swear that Jivraj and Ramdas agreed to such credit being given. It is most unlikely that they should have run such a risk when they charged no interest on the account and only worked for a small commission moreover it is quite inconsistent with the evidence of defendant 4 that he drew hundis payable at sight for the approximate value of the goods a day or two after they had been purchased. It was suggested on behalf of defendants 3 and 4 that the first defendants considered that they were paid for the goods when they received the hundis drawn by defendant 4, but there can be no doubt, and it was conceded by counsel for defendants 3, that this was only conditional payment, and that the first defendants did not lose their right to stop if the hundis were not honoured.
19. Defendant 4 said that he drew hundis against goods purchased a day or two after the purchase, Jivraj on the other hand said that the hundis were drawn in exchange for railway receipts.
20. The statement extracted from the books by the second defendants shewing the dates of the purchases of cotton and the dates of the various hundis drawn against the goods makes it clear that neither of these stories is quite correct. Almost every day during the season goods were being purchased or hundis being drawn. The several items for goods purchased and for hundis never correspond. On 6th May the total of hundis drawn up to that date exceeded the value of goods purchased by over Rs. 11,000 but usually there was a considerable balance in favour of the first defendants. I do riot think that Jivraj meant that a certain hundi or batch of hundis was given to him by defendant 4 in exchange for a certain railway receipt, the proceeds of the hundi or hundis to be appropriated to the purchase price of the particular goods referred to in the railway receipt. There was nothing written on the hundis to show that they represented payment for a particular consignment. It is more likely he meant that hundis were given on the occasion of railway receipts being handed to defendant 3, but the proceeds were credited in account current.
21. For instance in May it appears from a statement handed in by the second defendants as prepared from the books of the first defendants that hundis were drawn on twenty-five days and goods consigned on only ten days, and the same thing occurred during June and July. As a matter of fact there was an account current between the first defendants and defendants 3 and 4. Defendants 3 and 4 were debited from time to time with the value of goods purchased on their account and credited with amounts of the hundis drawn by defendant 4. The first defendants had a lien on the goods in their possession for the balance due. If I am correct as to this it follows that -the first defendants were in the position of unpaid vendors if there was a balance in their favour.
22. But I must deal with the contention that there were hundis drawn against these 135 bales and that those hundis had been met.
23. Defendant 3 obtained an advance of Rs. 15,000 from the second defendants on the security of the railway receipts for the 135 bales. With this money he paid off the hundis in Exhibit 1 S.A., viz., hundis for Rs. 7,500 drawn on the 22nd July, hundis for Rs. 5,000 drawn on the 25th July, and hundis for Rs. 2,400 drawn on the 26th July. His case is that these hundis were drawn against the 135 bales in suit and that he could not pay the hundis Exhibits A, B, C, D, because he did not get the railway receipt for the 102 bales. This could only be true if these hundis were drawn against the 102 bales. Now on the 2nd August the first defendants had in their hands these 102 bales and other 38 bales of loose cotton and to bring the amount of their hundis to about the equivalent of cotton purchased defendant 4 drew a hundi for Rs. 1,000 on the 30th July and a hundi for Rs. 15,000 on the 2nd August. If any one of all the hundis drawn by defendant 4 could be said to be drawn against a particular consignment, it was this hundi for Rs. 15,000, and therefore the suggestion that the dishonoured hundis represented payment for the 102 bales and that the paid hundis Exhibit 1 and A represented payment for the 135 bales is absolutely negatived.
24. These were also due to the first defendants on 2nd August about Rs. 10,000 for pressing charges and commission less a sum of over Rs. 4,000 due to defendants 3 and 4 for the sale of gunny bags. If defendant 3 calculated to pay off the hundis, Exts. A, B, C and D, with money raised by pledging the railway receipt for 102 bales, how was he going to meet the hundis for Rs. 1,000 and Rs. 15,000 and the balance due for ginning and pressing and commission for which, the first defendants held the 38 bales valued only at Rs. 5,000. It is quite clear that defendant 3 had got behindhand in paying off the hundis drawn by defendant 4 and when he had paid off hundis fallen due with moneys raised on the railway receipts for the 135 bales there was still a large amount due for which the first defendants had no cover. The books of the defendants 3 and 4 show that they have no means whatever. They have been the victims of the heavy fall in the value of cotton since the end of July, which had caused the margin between the amounts raised from shroffs on the pledge of railway receipts and the selling value of the cotton to disappear. They had no capital and it is idle for them to pretend that their credit suffered owing to the goods in suit being stopped. They had no credit in the ordinary sense of the word as no one is shown to have ever advanced them money except on the security of goods. Assuming that they had got the railway receipt for the 102 bales on which they might have borrowed about Rs. 12,000, they would have had absolutely nothing with which to meet the balance of their hundis to the extent of over Rs. 18,000, let alone the balance of commission and pressing charges, except the 38 bales in the first defendants' possession at Bagalkote. It seems quite immaterial that the hundis in suit were not formally protested until Jivraj came to Bombay. Very likely defendant 3 had all along been in the habit of asking the persons who presented the hundis of defendant 4 to wait a few days until he got another railway receipt but the fact that the hundis were not paid at sight was sufficient to entitle the first defendants to stop the goods as soon as they heard of such non-payment.
25. In my opinion it has been proved beyond all questions that defendants 3 and 4 were insolvent, that the first defendants had not been paid, and that whether they be regarded as factors or quasi vendors they were entitled to stop the goods while in transit as against defendants 3 and 4.
26. It remains to consider what was the effect of the endorsement and delivery by defendants 3 of the railway receipts for the 135 bales to the second defendants to secure an advance of Rs. 15,000.
27. Condition 3 on the back of the railway receipts is as follows:-
That the Railway receipt given by the Railway Co. for the articles delivered for conveyance must be given up at destination by the consignee to the Railway Co. or the Railway may refuse to deliver and that the signature Of the consignee or his agent in the delivery book at destination shall be evidence of complete delivery.
If the consignee does not himself attend to take delivery he must endorga on the receipt a request for delivery to the person to whom he wishes it made and if the receipt is not produced the delivery of the goods may at the discretion of the Railway Co. be withheld until the person entitled in its opinion to receive them has given indemnity to the satisfaction of the Railway Co.
28. It will be noticed that this condition contemplates delivery only to the consignee or his endorsee as his agent if he is unable himself to attend to take delivery. It does not even contemplate the sale of the consignment of the railway receipt and endorsement of the railway receipt to the purchaser as the railway receipt did in the Great Indian Peninsula Railway Company v. Hanmandas ILR (1889) 14 Bom 57. So there can be no doub that the railway receipts in suit are not instruments of title within the meaning of Section 103 of the Indian Contrac Act. It was contended that railway receipts are now instruments of title by virtue of Section 137 of the Transfer of Property Act which has been applied to Bombay since the decision in G.I.P. Ry. Company v. Hanmandas. The last chapter of the Transfer of Property Act deals with the transfer of actionable claims, and after it is enacted how such claims are to be transferred, Section 137 says that nothing in the preceding sections applies to stock, shares, etc., or to any mercantile document of title to goods. The explanation says ' the expression mercantile document of title to goods includes a bill of lading, railway receipt, etc.
29. Railway receipts are, therefore, excepted from the provisions of that chapter but it cannot be argued from that circumstance that the Legislature has definitely enacted that railway receipts are instruments of title within the meaning of Section 103 of the Indian Contract Act.
30. If that was the case Sargent C. J. would have said in the last paragraph of his judgment that all that was required to satisfy the wishes of the commercial community was to make the Transfer of Property Act applicable to Bombay.
31. But it was argued that by the custom of the trade the title to the goods covered by the railway receipts passed by endorsement and delivery of the receipt for valuable consideration.
32. A custom was proved in G.I.P. Ry. Co. v. Hanmandas to prevail amongst merchants in Bombay engaged in the grain trade that railway receipts endorsed by one holder to another were considered as representing the goods and entitling the last endorsee to delivery. See para. 13 of the case stated by the Chief Judge of the Small Causes Court, but the Appeal Court held that did not affect the right of an unpaid vendor to stop the goods in transit.
33. Assuming for the purposes of my judgment that a custom has been proved that in Bombay railway receipts do pass amongst merchants by endorsement and delivery, and that railway receipts so endorsed are considered as representing the goods, I am bound by the decision in the above mentioned case to hold that the endorsement and delivery of the railway receipts to the defendants 2 could not affect the right of the first defendants to stop the goods.
34. A custom prevailing amongst buyers in Bombay cannot make a railway receipt negotiable as against the vendors if it is net negotiable at law. There seems to be a considerable confusion of thought involved in such a contention. A relation of contract is established between the vendor and the purchaser, and the terms of the contract depend on what has been agreed upon between them and not on a custom which may prevail amongst purchasers in general and the persons with whom they deal.
35. In the Merchant Banking Company of London v. Phcenix Bessemer Steel Company (1877) 5 Ch. D. 205 it was proved that the vendors and purchasers in the iron trade had instructed counsel to prepare a particular form of warrant which should be given to the purchaser by the vendor as representing the goods referred to therein. The warrant was in fact an order to deliver to bearer and the Court held that a vendor who parted with such a warrant must be taken to have special notice and special knowledge that the warrant was intended to be used for the purpose of raising money on it.
36. The facts of this case are very different. The first defendants contracted with the Railway Company to carry the goods to Bombay and delivered the railway receipt given to them by the Railway Company to defendants 3 and 4 to enable them or their agents to get delivery of the goods. The railway receipt was not an order for delivery to bearer and there is nothing whatever to show that the first defendants intended to preclude themselves from stopping the goods in transit if defendants 3 and 4 did not pay for them. Assuming that the first defendants were aware that railway receipts passed by endorsement and delivery amongst merchants in Bombay, that could not affect their right as against their purchasers, unless they expressly or impliedly agreed to forego such rights in the event of the railway receipts so passing. It is not a question of custom, but of contract.
37. It has not been suggested that vendors and purchasers generally in the cotton trade have come to any agreement regarding the negotiability of railway receipts, it is difficult to see how any such agreement could be arrived at except perhaps in individual cases. This question is constantly appearing in one form or another in our Courts, but as far as I can see merchants who have advanced money on railway receipts have no remedy against an unpaid vendor so long as the Legislature does not enact that railway receipts are instruments of title.