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The Mercantile Bank of India, Ltd. Vs. the Central Bank of India, Ltd. - Court Judgment

LegalCrystal Citation
SubjectCivil;Contract
CourtChennai
Decided On
Reported inAIR1935Mad936; 160Ind.Cas.430; (1935)69MLJ509
AppellantThe Mercantile Bank of India, Ltd.
RespondentThe Central Bank of India, Ltd.
Cases ReferredScholfield v. Earl of Londesborough
Excerpt:
- - & sons a well-known firm of ground-nut merchants and exporters who were carrying on a large business in madras. in that railway receipt sometimes the up-country seller appeared as consignor and consignee in which event the receipt was endorsed and delivered to c. & sons used to deliver over to the banks the railway receipts covering consignments of groundnuts by way of pledge and secure sums of money specifically advanced in good faith by the banks against the railway receipts as loans. the defendants' case was that they became the pledgees of the railway receipts and the goods covered by them and in good faith advanced sums of money to c. provided that the pawnee acts in good faith and under circumstances which are not such as to raise a reasonable presumption that the pawnor is.....horace owen compton beasley, kt., c.j.1. this is an appeal from the judgment of stone, j. in c.s. no. 567 of 1929. that was a suit in which the central bank of india, limited were the plaintiffs and the mercantile bank of india, limited the defendants. the plaintiffs sued the defendants for damages for conversion of goods. the suit arose out of extensive frauds committed by c. iv narayana aiyar and sons whom i shall call c.k.n. & sons a well-known firm of ground-nut merchants and exporters who were carrying on a large business in madras. this firm purchased ground-nuts from the up-country growers. the ground-nuts were then despatched by rail to madras by one or other of two railways, the madras and southern mahratta railway or the south indian railway. there was a working arrangement.....
Judgment:

Horace Owen Compton Beasley, Kt., C.J.

1. This is an appeal from the judgment of Stone, J. in C.S. No. 567 of 1929. That was a suit in which the Central Bank of India, Limited were the plaintiffs and the Mercantile Bank of India, Limited the defendants. The plaintiffs sued the defendants for damages for conversion of goods. The suit arose out of extensive frauds committed by C. iv Narayana Aiyar and Sons whom I shall call C.K.N. & Sons a well-known firm of ground-nut merchants and exporters who were carrying on a large business in Madras. This firm purchased ground-nuts from the up-country growers. The ground-nuts were then despatched by rail to Madras by one or other of two railways, the Madras and Southern Mahratta Railway or the South Indian Railway. There was a working arrangement between these railways and the Madras Port Trust which worked its own railway system within the port and took over the consignments of ground-nuts when they arrived at the port. The Port Trust had its transit sheds but there were also on its premises godowns leased to traders. I am here stating the facts as they are set out in the judgment of the Privy Council in the Official Assignee of Madras v. The Mercantile Bank of India, Ltd. because the facts there and the course of business described are the same as in the present case. The general course of business was for C.K.N. & Sons to obtain from the railway companies in respect of each consignment or wagon load a railway receipt. In that railway receipt sometimes the up-country seller appeared as consignor and consignee in which event the receipt was endorsed and delivered to C.K.N. & Sons; sometimes the seller was named on the receipt as consignor while C.K.N. & Sons were consignees; in other cases C.K.N. & Sons were named on the receipt both as consignors and consignees. Both the plaintiff and the defendant banks used to finance the consignments of the ground-nuts purchased. This they did in the following way. C.K.N. & Sons used to deliver over to the Banks the railway receipts covering consignments of groundnuts by way of pledge and secure sums of money specifically advanced in good faith by the Banks against the railway receipts as loans. C.K.N. & Sons in respect of such loans also gave promissory notes and letters of pledge of goods covered by such railway receipts to the Banks. It is admitted that the course of business was and this was adopted by both the plaintiffs and the defendants for the Batiks to avail themselves of the services of C.K.N. & Sons for the purpose of clearing the goods in respect of which the railway receipts had been pledged with them upon arrival at the Port Trust premises and storing them in the plaintiffs' and Defendants' godowns. The plaintiffs' case was that in the usual course they sent the railway receipts which relate to the suit under appeal and which had been pledged with them against advances of money to their godown-keeper at the Port Trust premises and to be handed over to C.K.N. and Sons for the specific purpose of clearing the goods covered by the railway receipts and storing them in the plaintiffs' godowns and for that purpose only. Unfortunately C.K.N. & Sons instead of doing this fraudulently and dishonestly purported to pleadge several of the railway receipts, namely, thirty-seven, with the defendants. These railway receipts cover in the aggregate about 12,952 bags of ground-nuts. The defendant Bank as the result obtained delivery of those bags of ground-nuts by means of the railway receipts and disposed of them for the benefit of themselves. These fraudulent acts occurred on various dates in January and February, 1929 covering a period of about a fortnight. The plaintiffs alleged that C.K.N. & Sons were at this time in hopelessly embarrassed circumstances; and it is common ground that they absconded from Madras on or about the 7th February, 1929, and were adjudicated insolvents on a creditor's petition on the 10th February, 1929 by this High Court. The plaintiffs' case was that the railway receipts and the goods covered by them were validly pledged with them, that they did not lose their title and rights as pledgees thereafter and that C.K.N. & Sons had no title, power or authority to deal with the railway receipts or goods covered by them by purporting to pledge them with the defendant Bank and that the defendant Bank had not derived any title as pledgees or otherwise of the railway receipts or the goods covered by them because C.K.N. & Sons obtained the custody of the railway receipts by fraud. The defendants' case was that they became the pledgees of the railway receipts and the goods covered by them and in good faith advanced sums of money to C.K.N. & Sons. Briefly their defence was (1) that they had derived title to the goods under Section 178 of the Indian Contract Act (the old section before its recent amendment) or (2) that, as both the plaintiffs and the defendants were admittedly innocent parties who had suffered loss by the fraudulent acts of C.K.N. & Sons, the loss must be borne by the plaintiffs because they had enabled the fraud to be committed by their own negligent act. Before the trial certain admissions were made and facts agreed. These are to be found in the statement of agreed facts dated the 26th April, 1932. There the defendants admitted that the plaintiffs were bona fide pledgees for value of the 37 railway receipts accompanied by promissory notes and letters of lien which are referred to in the plaint and that the 37 railway receipts were handed over to C.K.N. & Sons by the plaintiffs through their godown keeper in the Port Trust premises for the purposes before mentioned. Both parties agreed that neither Bank had any knowledge or suspicion of fraud or dishonest conduct on any one's part before the insolvency of C.K.N. & Sons. The plaintiffs admitted that in no case did they place their stamp on the railway receipts pledged with them by C.K.N. & Sons until the 26th January, 1929 and the defendants admitted that thereafter the plaintiffs did so. The defendants admitted that the loans in respect of which the suit railway receipts were pledged with the plaintiff Bank were still outstanding. On the first point the learned trial Judge found against the defendants' contention holding that the railway receipts and the goods were obtained by C.K.N. & Sons by means of fraud and that C.K.N. & Sons intended when they got the railway receipts from the plaintiffs' godown keeper to do all that which they did do later, first of all having made the plan and then having carried it out. In his opinion even apart from fraud an offence within the meaning of Section 178 of the Indian Contract Act had been committed. He, therefore, held that there had been no pledge to the defendants within the meaning of Section 178. He accordingly gave a decree for the plaintiffs for Rs. 1,86,160. The original Section 178 of the Indian Contract Act, 1872 as then in force, reads as follows:

A person who is in possession of any goods, or of any bill of lading, dock warrant, warehouse keeper's certificate, wharfinger's certificate, or warrantor order for delivery, or any other document of title to goods, may make a valid pledge of such goods or documents; provided that the pawnee acts in good faith and under circumstances which are not such as to raise a reasonable presumption that the pawnor is acting improperly; Provided also that such goods or documents have not been obtained from their lawful owner or from any person in lawful custody of them, by means of an offence or fraud.

2. Their Lordships of the Privy Council in The Official Assignee of Madras v. The Mercantile Bank of India, Ltd have held that a railway receipt, such as those in question in this case, is a document of title to the goods within the section and their Lordships agree with the appellate decision of this High Court that the words in the section 'a person who is in possession of any goods or of any bill of lading' are sufficiently wide to cover the owner as well as any mercantile agent. They state also that pledge of the document is a pledge of the goods as distinct from the document. Mr. Grant for the appellants contends that the learned trial Judge was wrong in holding that the goods or documents had been obtained from the plaintiffs or from the Port Trust by means of an offence or fraud and that therefore the defendants were not defeated by the proviso to Section 178 and had obtained a valid pledge of the goods. He argues that C.K.N. & Sons, although no doubt guilty of the offence of fraudulent conversion or criminal breach of trust after they had obtained the railway receipts from the plaintiffs, have not been proved to have had any such intention at the time when the railway receipts were obtained from the plaintiffs' godown keeper, that is to say, that it is reasonable to infer that C.K.N. & Sons intended then to get the railway receipts with the specific and legitimate object of putting the goods into the plaintiffs' godowns but after obtaining the railway receipts decided to act dishonestly or fraudulently. In my view, this contention would have some force if in this case there had been only one or even two of such acts on the part of C.K.N. & Sons. There were, however no less than 37 of such acts. From the statement filed in the case it is seen that in a number of instances the railway receipts were handed to the defendants by C.K.N. & Sons on the same day that they were delivered to the plaintiffs and that these alleged frauds all occurred within the space of a fortnight. In my view, the inference that C.K.N. & Sons got the railway receipts and the goods intending to deal fraudulently with them is far stronger than the inference that they had no such intention then. C.K.N. & Sons knew what the course of business was and knew that having pledged the railway receipts with the plaintiffs these were only handed to them by the godown keeper for a specific purpose. They did not inform the plaintiffs that they proposed to use the railway receipts for the purpose of pledging the documents with the defendants. Had they done so, obviously they would not have been given the documents. They suppressed the real purpose. 'Fraud' is defined in Section 17 of the Indian Contract Act as follows:

'Fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract; (2) the active concealment of a fact by one having knowledge or belief of the fact; (4) any other act fitted to deceive.

3. And the explanation says that:

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.

4. The latter half of the explanation applies to the position of C.K.N. & Sons. I am clearly of the view that the decision of the learned trial Judge upon this point is quite correct but I think also that it can be supported on the ground, although not put forward at the trial, that C.K.N. & Sons were not in 'possession' of the Railway receipts in the sense that 'possession' is intended in Section 178. C.K.N. & Sons merely had the custody of the railway receipts and the custody for a specific and limited purpose and I am satisfied that Mr. Doraiswami Aiyar's argument is correct with regard to this and indeed their Lordships of the Privy Council upon a construction of Section 178 have so dicided although Mr. Grant for the appellants strongly contends that the decision there must be taken to be strictly limited as bearing only upon the respective rights of the Port Trust, the Mercantile Bank of India and the Official Assignee in that case under the Insolvency Act. In my view, no such limited application is to be given to the decision of their Lordships and it applies equally to the present case. This disposes of the appellants' first contention. I now come to the appellants' second point. The learned trial judge did not consider the question of estoppel which was raised on this point observing that:

A plea of estoppel was by amendment allowed. Estoppel would have shut out evidence establishing the Central Bank's title as pledgees. In view, however, of the first admission of the Mercantile Bank the difficulty disappears as it is admitted that the Central Bank were bona fide pledgees for value of 37 railway receipts accompanied by Collateral documents including letters of lien. No evidence is accordingly required on this point and estoppel ceases to have any effect.

5. He further on says that there is an absence of effective plea of estoppel and elsewhere that the question of estoppel does not arise. With respect to the learned trial Judge, that question did arise and could only arise if the Central Bank of India, Limited, the plaintiffs, were bona fide pledgees for value of the 37 railway receipts and the fact that the defendants admitted that they were does not alter the position. If the plaintiffs were not bona fide pledgees, they could have no title which by their conduct they have estopped themselves from setting up. It is difficult to understand the learned trial Judge's view upon this matter because the defendant's argument at the trial was that, although the plaintiffs were bona-fide pledgees for value, they had by delivering the railway receipts back to C.K.N. & Sons enabled C.K.N. & Sons to deal with the railway receipts as if C.K.N. & Sons were the owners of them whereby the defendants were defrauded and that as the plaintiffs had by their conduct enabled the defendants to be defrauded, the plaintiffs, although bona fide pledgees for value, were estopped from setting up their title against the defendants, the innocent pledgees for value of the goods; and it is conceded by both the appellants and the respondents here that the question of estoppel was directly in issue at the trial.

6. The appellants' contention is that railway receipts are in the same position as bills of lading. This is correct. It has been so held in the Official Assignee of Madras v. The Mercantile Bank of India, Ltd. by their Lordships of the Privy Council. Proceeding from this, the appellants contend that property in the goods comprised in the railway receipts passes by mere transfer from hand to hand of the railway receipts though it is rightly conceded that a distinction has to be drawn between a bill of lading and a bill of exchange and that the latter had a higher decree of negotiability than a bill of lading. That is quite clear from numerous decisions which it is not necessary to refer to. It is contended that the owner or the pledgee of a railway receipt owes, by reason of its negotiability, a duty to the whole world not to issue it without there being upon it some indicia of its ownership which would prevent the transfer by the person to whom it has been issued to bona fide transferees or at. least put intending transferees upon enquiry. The well-known case of Lickbarrow v. Mason (1787) 2 T.R. 63 was relied upon by Mr. Grant for the appellants as strongly supporting his contention and reference was made to the decision of Ashhurst, J. which has so often been quoted, namely,

We may lay it down as a broad and general principle that wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.

and he further relied upon Babcock v. Lawson (1879) 4 Q.B.D. 394. There Cockburn, C.J., stated at pages 400 and 401;

We are prepared to hold, as we intimated in Moyce v. Newington (1878) 4 Q.B.D. 32 that where one of two innocent parties must suffer from the fraud of a third, the loss should fall on the one who enabled the third party to commit the fraud.

and In Vickers v. Heritz L.R. 2 H.L. (Scotch) 113 Lord Chancellor Hatherley says:

When one person arms another with a symbol of property he should be the sufferer, and not the person who gives credit to the operation and is misled by it.

7. It is important to observe, however, that the Court held that the intention of the plaintiffs in that case must be taken to have been to revest the whole property in the flour in the persons to whom they had made advances on the security of some flour which in consequence was warehoused by the latter. These latter then got advances from the defendants on the same security in ignorance of the prior transaction with the plaintiffs. The owners of the flour then, by a fraudulent representation that they had sold the flour to the defendants, procured from the plaintiffs a delivery order for the flour, which they gave to the defendants. The defendants thus obtained possession of the flour and, the advances made by them not being repaid, sold them. The plaintiffs, it was held, could not maintain the action for conversion against the defendants for the reasons already stated. In the present case, there was no intention to revest the goods in C.K.N. & Sons at all. Quite the contrary. The intention was to get the goods into the plaintiffs' godowns, that is to say, into their own possession; and I regard this as an all important distinction. Goodwin v. Robarts (1876) L.R. 1 A.C. 476 was referred to but, in my view, this case is of no assistance to the appellants because there the document, namely, scrip of a foreign government was held to be, by custom of ail the stock markets of Europe, a negotiable instrument passing by mere delivery to a bona fide holder for value. In the present case such a custom has been negatived. There the document was a negotiable instrument in the fullest sense of that description which a bill of lading most certainly is not. Henderson & Co. v. Williams (1895) L.R. 1 Q.B.D. 521 was next referred to. There, Lord Halsbury held that the true owner, having enabled to hold himself out as the owner, could not set up his title against that of the purchaser. On page 525 he says:

the question here is whether the true owner of the goods has so invested the person dealing with them with the indicia of property as that when an innocent person entered into a negotiation with the person to whom these things have been entrusted with the indicia of property the true owner of the goods cannot afterwards complain that there was no authority to make such a bargain.

8. In that case the owner of goods lying at a warehouse was induced by the fraud of F to instruct the warehouseman to transfer the goods to the order of F and the goods were accordingly placed at F's disposal. There again, the owner's intention was to place the goods at the fraudulent person's disposal. That is not so here. Next, reliance was placed upon Commonwealth Trust v. Akotey (1926) A.C. 72. There the respondent, a grower of cocoa in the Gold Coast colony, consigned by railway bags of cocoa to 1 to whom he had previously sold cocoa. Before difference as to the price had been settled, L sold the cocoa to the appellants and handed the consignment notes to their agent, who recognised the cocoa to the appellants and the appellants bought in good faith and for the full price. The respondent sued the appellants for damages for conversion but it was held that he was by his conduct precluded from setting up his title against the appellants and accordingly that the action failed. In this case Lord Shaw who delivered the judgment of their Lordships' Board applied the principle laid down by Ashhurst, J. in Lickbarrow v. Mason (1787) 2 T.R. 63 . The correctness of this case, however, has been doubted by Lord Sumner in R.E. Jones, Ltd. v. Waring & Gillow Ltd. (1926) A.C. 670. There, the plaintiffs who were the appellants claimed in their action to recover a sum of 5,000 paid to the defendants (respondents) by cheque as money paid under a mistake of fact. The facts show that the appellants were induced by the fraudulent representation of one Bodenbam to draw two cheques to the order of the respondents, one for 2,000 and the other for 3,000 which they handed to Bodenham who handed them over to the respondents in payment of a debt which he owed to the respondents in respect of some goods purchased from them under a hire-purchase agreement and which they had retaken possession of in consequence of the debt. The respondents cashed the cheque and on the faith of this payment restored to Bodenham the goods which they had seized and let him have some more. The appellants then commenced their action against the respondents claiming repayment of the 5,000 as money had and received by the respondents for their use. In the judgment of the House of Lords the well-known dictum of Ashhurst, J. in Lickbarrow v. Mason (1787) 2 T.R. 63 to which reference has already been made was referred to. Lord Cave, Lord Chancellor, came to the conclusion that the appellants were estopped on account of their conduct which enabled Bodenham to defraud the respondents and held that the respondents were entitled to succeed; and in this judgment Lord Atkinson concurred. Lords Shaw, Sumner and Carson held that the appellants were entitled to succeed. Viscount Cave, however, in discussing the dictum of Ashhurst, J. in Lickbarrow v. Mason (1787) 2 T.R. 63 said that:

It cannot now be treated as free from exception; but it still holds good as a general principle, and where the prayer has been guilty of anything which can be called negligence or indiscretion, there has been no hesitation in applying it.

9. Lord Sumner at page 693 says:

There was no duty between Jones, Ltd. and Waring and Gillow, Ltd., and, without that, the wide proposition of Ashhurst, J. in Lickbarrow v. Mason (1787) 2 T.R. 63 would not apply see observations of Lord Macnaghten and Lord Lindley in Farquharson Brothers & Co. v. King & Co. (1902) A.C. 325 and of Lord Parmoor in London Joint Stock Bank v. Macmillan and Arthur (1918) A.C. 777 which were apparently overlooked in Commonwealth Trust v. Akotey (1926) A.C. 72.

10. With reference to the dictum of Ashhurst, J. in Lickbarrozv v. Mason (1787) 2 T.R. 63 and the cases in which reliance has been placed upon it by the Court, it is stated in Vol. 11 of Smith's Leading Cases 13th Edition at page 810:

The dictum of Ashhurst, J. is in truth a loose and inaccurate statement; see London Joint Stock Bank v. Macmillan and Arthur (1918) A.C. 777 and it is significant that in almost every case in which it has been relied on by the Court there is to be found some further, and more exact, ratio for the decision.

11. And in referring to Commonwealth Trust v. Akotey (1926) A.C. 72 already cited it is described at page 811 as 'a remarkable case' and that:

It seems difficult, if not impossible, to reconcile this result with the cases decided under the earlier Factors Act.

12. In Farquharson Brothers & Co. v. King & Co. (1902) A.C. 325 it is stated that the doctrine laid down by Ashhurst, J. in Lickbarrow v. Mason (1787) 2 T.R. 63 is for too wide. Paragraph 561 on page 492 of Vol. 13 (2nd Edition) of Halsbury's Laws of England was also relied upon by Mr. Grant for the appellants and also paragraph 568 at page 499 in the same volume.

13. It seems to me that, unless by custom or by statute a document is a negotiable instrument in its full sense, then cases such as the London Joint Stock Bank v. Simmons (1892) A.C. 201 also relied upon by the appellant and cases of that description cannot apply. A bill of lading is not a negotiable instrument in that sense at all; and Willes, J. in Fuentes v. Montis (1868) L.R. 3 C.P. 268 said that Negotiable Instruments 'include bills of lading as against stoppage in transitu only' and in Note 1 to Article 56 in Scrutton on Charter parties and Bills of Lading (13th Edition) were bills of lading and documents of title are dealt with, it is stated (page 192):

'Negotiable' as a term of art describes an instrument which can give to a transferee a better title than that possessed by the transferor. A bill of lading is not 'negotiable' in this sense; the indorsee does not get a better title than his assignor.

14. And the observations of Lord Campbell in Gurney v. Behrend (1854) 3 E. & B. 622 : 118 E.R. 1275 are relied on. In Smith's Leading Cases (13th Edition) Vol. 1, page 538 it is stated:

It should here be observed that negotiability is not, properly speaking, an attribute of bills of lading, dock warrants or other documents of title to goods, for it has always been held that possession of such a document can confer on the holder no greatar power than possession of the goods themselves and therefore the transferor of the document cannot give to the holder any better title to the goods than he himself possesses.

15. And railway receipts being assimilate bills of lading must, therefore, be in the same position, Blackburn, J. in Cole v. North Western Banks (1875) 10 C.P. Cases 354 says:

And the possession of bills of lading or other documents of title to goods did not at common law confer on the holder of them any greater power than the possession of the goods themselves.

16. I am satisfied, therefore, that the real owner's right to the goods here as against the bona fide transferee can only be defeated by showing that they were under some duty to the transferees of which they have been guilty of a breach. What duty were the respondents under towards the appellants? So far as I am able to see, no duty allotted; and they cannot, as Mr. Grant has contended, have owed any duty to the world at large because the railway receipts are not negotiable instruments in the sense that that description is understood generally. The respondents, were not guilty of any breach of duty towards the appellants. They merely parted with the custody of the documents to C.K.N. & Sons for a specific and limited purpose and I am entirely unable to see that they owed a duty towards anyone except themselves and the answer to Mr. Grant's argument that the respondents enabled C.K.N. & Sons to hold themselves out as the owners of the railway receipts and the goods is that C.K.N. & Sons were not given the disposing power over them but had them for a limited purpose only and therefore the facts are quite different from those in Henderson & Co. v. Williams (1895) 1 Q.B.D. 521 nor can the appellants rely upon those cases relating to agents where the agent was given a limited authority which gave him an apparent authority because the appellants' case throughout has been that they dealt with C.K.N. & Sons as the apparent principals and not as agents, which is a very different thing. The appellants cannot rely on an authority on the basis of which they did act. For these reasons, the respondents were rightly given a decree in the trial Court and this appeal must accordingly be dismissed with costs. Certificate for two counsel.

Cornish, J.

17. I am of the same opinion. I think it must be held upon the authority of the Official Assignee of Madras v. Mercantile Bank of India, Ltd. that when the plaintiff Bank, in this case the Central Bank, delivered the railway receipts pledged with it to the pledger C.K.N., the Bank was not parting with the possession of the documents or of the goods to which they related. It was only parting with the custody of the documents to enable the pledged goods to be unloaded from the railway into the Bank's godown. When, therefore, C.K.N. fraudulently took those documents to the defendant, the Mercantile Bank, and pledged them with that Bank, he was not in possession of the documents or of the goods, and consequently he was incapable of pledging them to the defendant Bank. The first condition under Section 178, Contract Act to a valid pledge was wanting. I am further of opinion that, as found by the learned trial Judge, C.K.N. got the documents from the Central Bank by fraud, and in pursuance of a systematic fraud, for he never intended to use them for the purpose for which they were committed to his custody by the Bank; and that in consequence the proviso to Section 178 would prevent him from giving a valid pledge to the defendant Bank. This conclusion however, does not dispose of the case.

18. The learned trial Judge apparently did not think it necessary to deal with the defence of estoppel raised in the written statement. The defendant pleaded that the plaintiff Bank was estopped from asserting its title to the goods by its act in placing C.K.N. in possession of the relative documents without anything therein to indicate the interest of the plaintiff in the same, thereby enabling C.K.N. to hold himself out as the owner of the goods. This is the question which has been mainly argued in the appeal, and has been the subject upon which many cases have been cited to us. I think that cases relating to the transfer of negotiable instruments may be ruled out, because it is clear that these railway receipts are not negotiable instruments in the strict sense. They stand oil the same footing as bills of lading; and, 'a bill of lading is not, like a bill of exchange or promissory note, a negotiable instrument, which passes by mere delivery to a bona fide transferee for valuable consideration, without regard to the title of the parties who made the transfer'; Gurney v. Behrend (1854) 3 E. & B. 622 : 118 E.R. 1275.

19. The question has resolved itself into this : Has the plaintiff Bank by act or omission caused the defendant Bank to believe that C.K.N. had authority to pledge the goods, and to act upon that belief? Both Banks were victimized by C.K.N. It has been urged that persons who issue documents having a certain mercantile significance owe a duty to merchants and others who are likely to deal with those documents to use due care in the issue of those documents. And, in particular, it has been contended that it was negligent of the Central Bank to let these railway receipts go out of its custody without some mark or stamp upon them to indicate the Bank's interest in them. The manager of the Central Bank in his evidence admitted that a Bank's stamp on the receipts would put him on inquiry if receipts were produced for the purpose of being pledged. But there is no evidence that this very reasonable precaution is one of such general practice that the neglect of it might amount to a breach of duty. There is no other ground that I can see for imputing to the Bank a breach of duty. But I think that there was no duty owing by the plaintiff Bank to the defendant Bank. There was no privity between them. And if there was no duty, negligence would not operate to create an estoppel:

Negligence to have the effect of estopping the party must he the neglect of some duty cast upon the person guilty of it.

20. Johnson v. Credit Lyonnais Co. (1877) L.R. 3 C.P.D. 32 . The Bank was not-bound to suppose that if the railway receipts were handed to C.K.N. for the purpose of getting the goods into the Bank's godown's C.K.N. would use them to defraud somebody else. C.K.N. was a customer of the Bank and had a considerable reputation then. The Bank could not be held liable for not anticipating C.K.N.'s dishonesty. Thus, Lord Watson in Scholfield v. Earl of Londesborough (1896) A.C. 514 has said:

It is not consistent with the general spirit of the law to hold innocent persons responsible for not taking measures to prevent the commission of a crime which they may have no reason to anticipate.

21. For these reasons I am of opinion that the respondent the Central Bank, is not estopped from asserting its claim to the goods ineffectually pledged by C.K.N. with the Appellant's Bank or to their value - and that the appeal fails.


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