George Lowndes, J.
1. The questions for decision in these appeals arise out of a fraud committed by one Fernandes. In the year 1914 he was entrusted by the appellants, who were residents of Goa, with certain securities for the purpose of collecting on their behalf the interest as it fell due. Among these securities were forty-one ' debentures ' issued by the Trustees for the Improvement of the City of Bombay under powers contained in their Act (Bombay Act IV of 1898) and also one ' municipal debenture,' being presumably a debenture issued by the Municipal Corporation of Bombay under Bombay Act III of J 888. All of these securities were transferable by endorsement.
2. Fernandes seems to have remitted the interest to the appellants regularly till the middle of 1923, when he defaulted, and it was then discovered that he had, in 1918, by means of forged endorsements in his own favour, pledged all the debentures in question (together with others not the subject of these appeals) with the Alliance Bank of Simla, endorsing them over to that bank to secure his own indebtedness.
3. Had no further complications occurred there would probably have been little difficulty in deciding on the rights of the parties; but in 1921 the Alliance Bank surrendered the forty-oneImprovement Trust debentures to the Trustees, who exchanged them for twenty-two new debentures, the face value of which differed in many cases from those of the originals, though the totals were the same. This transaction is described in the record as a ' renewal' of the debentures, and seams to have been in accordance with the usual practice, but it has an important bearing on the rights of the parties. All these new instruments were issued directly to, and in the name of, the Alliance Bank, clear of all previous endorsements. The original securities were cancelled by the Trustees and retained by them. The same process, mutatis mutandis, was gone through in the case of the Municipal debenture.
4. Thereafter, in 1921, Fernandes transferred his loan account to the Mercantile Bank of India, the respondents in these appeals, and on his instructions the Alliance Bank endorsed the new instruments over to the respondents.
5. The appellants now claim the delivery and transfer to them of these instruments by the respondents. They succeeded in the first Court in India, but failed to hold their decree on appeal, and the questions involved come before this Board for final determination. There is no dispute as to the facts set out above.
6. The securities entrusted to Fernandes were the property of the two sets of appellants, and suits were instituted by them separately on the original aide of the Bombay High Court. The defendants in each case were Fernandes, the Alliance Bank, and the respondents, but the suits were defended only by the respondents. They were tried and heard in appeal separately, but are consolidated before the Board, and in their Lordships' opinion the same considerations apply in each.
7. The original Improvement Trust ' debentures,' specimens of which are printed in the record, were in the form of a promise to pay a particular sum to the Bank of Bombay or order on August 20,1963, with half-yearly interest in the meantime, at four per cent. per annum. On the back was a series of spaces for the entry of interest payments and a column of endorsements commencing with an endorsement by the original payee, the Bank of Bombay, and ending with that of Fernandes to the Alliance Bank. The renewals, with which the appeals are principally concerned, were in the form of a promise to pay theAlliance Bank or order, and contained no reference to the originals except that under the serial numbers of each new instrument was entered another number, which is said to be that of an old debenture, and where two or more of the originals were consolidated in a new instrument the word ' consolidation ' appeared.
8. It was agreed on the argument in appeal in India that the so-called 'debentures' were promissory notes as defined in Section 4 of Act XXVI of 1881, and, therefore, under Section 13 of that Act negotiable instruments. In their Lordships' opinion this is the correct view of their legal attributes. There was no irregularity in their transfer to the respondents; the references to the old numbers and to consolidation were not, their Lordships think, sufficient to lead the respondents to believe that there was any defect in the title of the Alliance Bank, and it is not suggested that there was anything else in the transaction to put them on enquiry. The respondents were apparently, therefore, in the position of holders in due course under Section 9 of the Act.
9. The trial Judge, as already stated, decided both the suits in favour of the plaintiffs, the present appellants. The main ground of his judgment was that no title could be acquired by the respondents through the forged endorsements and that the ' renewals' must be regarded in law as merely the 'fruit 'of the original securities. He relied upon the oases of Lee v. Zagury (1817) 8 Taunt. 114:1 Bom. L R. 734 and Hunsraj v. Ruttonji I.L.R. (1899) Bom. 65. He made decrees in the appellants' favour, declaring in each case their title to the instruments claimed, and ordering the respondents to transfer and hand over the same to them together with all interest or dividends realized by the respondents within three years prior to the filing of the suits. He also granted the appellants certain relief against Fernandes, which is not now material.
10. The appeals were heard by Marten C.J., and Blackwell J., who delivered in each suit separate, but concurring, judgments in favour of the present respondents. In the one case they dismissed the suit as against the respondents, declaring that the appellants were not entitled to the 'new debentures' held by the respondents; in the other they limited the decree of the lower Court to certain securities not in question in these appeals.
11. The learned Judges were of opinion that the issue by the Improvement Trustees of the instruments, the subject of the suit, constituted in effect a new contract in each case between them and the Alliance Bank, that the respondents were holders in due course of these instruments, and that the appellants had no right of action against them. Referring to the authorities on which the trial Judge had relied, they held that the case of Hunsraj v. Ruttonji was wrongly deckled, and that Lee v. Zagury was a decision on very special facts, and could not govern the cases before them.
12. In their Lordships' opinion the conclusion come to by the appellate Court was right. They think that the suits, so far as the respondents were concerned, were misconceived. On the original debentures the Improvement Trustees were, no doubt, bound to the appellants, and the forged endorsements in favour of Fernandes would not, prima facie, affect their title. If these debentures had come into the possession of the respondents, the appellants might well have been entitled to recover them, But what the appellants claimed to have transferred and made over to them were instruments to which they never had a title and with which their Lordships think they had no concern. They were not in any sense mere appendages to or continuations of the Original securities. They may be called 'renewals,' but they were in form and in substance new and independent obligations in substitution for those under the surrendered instruments, and entered into by them with the Alliance Bank and their transferees. This is shown by the consolidation of the amounts for which the original promissory notes were issued, and by the elimination of the previous endorsements. In the case of dishonour by the makers it is hardly conceivable that the holders could be entitled to sue the endorsers of the old notes; they would not ordinarily even know who they were, and consolidation would be inexplicable except on the basis of a new contract, as any material alteration of the originals would render them void against intermediate parties; see Section 87 of the Act above referred to.
13. In truth, the only connection between the old and the new instruments was that, as between the Trustees and the Alliance Bank, the consideration for the issue of the new was the surrender of the old instruments. This cannot, their Lordships think, give the appellants any title to the new instruments, though it may not affect their title to the old ones.
14. It may be that if the suits had been instituted against the Improvement Trust it would have been difficult for that body to resist them. They were in possession of the securities to which the appellants were entitled, and though they affected to cancel them, this would not necessarily defeat the appellants' title. Their Lordships are not called upon to express, and do not express, any opinion upon this question.
15. Their Lordships agree with the learned Chief Justice of Bombay in thinking that Hunsraj v. Ruttonji (supra), so far as that decision dealt with ' renewals ' of Government promissory notes, was wrongly decided. They notice that the Indian Securities Act XIII of 1886, which provided for such renewals, gave special statutory protection to the Government in respect of the original securities, and this protection is continued, though subject to more stringent conditions, by Act X of 1920.
16. With regard to Dee v. Zagury (supra), their Lordships agree that it is no authority upon the present case; it was a decision upon a complicated set of facts, and did not affect to lay down any principle of law.
17. Their Lordships have dealt in this judgment mainly with the Improvement Trust debentures, but they think that the same considerations apply to the Municipal debenture, and that the appeals fail with regard to all of them.
18. For the reasons given their Lordships will humbly advise His Majesty that the consolidated appeals should be dismissed. The appellants must pay the costs.