1. The plaintiffs by a contract dated the 28th of November 1905 sold 1,000 bales of jute of the Rajindra mark to the defendant firm of E. A. Smith & Co., the goods to be placed alongside the exporting vessel during the month of November and to be paid for in cash against mate's receipts. Under shipping instructions of the same date received from the defendant firm, the goods were placed alongside the steamship Uganda, and in due course and in terms of the contract the goods were subsequently shipped on board the vessel and two mate's receipts, dated the 3rd and 4th December for 875 and 125 bales respectively, made out in the names of the defendant firm were obtained by the plaintiffs. These mate's receipts accompanied by the plaintiff's bill against the defendant firm for Rs. 46,000 and the usual measurement and weighment certificates were on the 5th of December made over to the defendant firm for examination, and the defendant firm gave the plaintiffs on the same day the usual receipt containing the statement that the documents were accepted for examination. It is alleged that the defendant firm in fraud of the plaintiffs and without paying for the goods, and notwithstanding repeated demands made by the plaintiffs for payment of the price of the goods or return of the documents presented the mate's receipts to Messrs. Mackinnon, Mackenzie & Co., the Agents of the steamship Uganda, and obtained bills of lading in respect of the goods mentioned in the mate's receipts, which bills of lading the defendant firm subsequently wrongfully pledged with the defendant Bank.
2. The plaintiffs charge that the defendant Bank did not act in good faith in accepting the pledge, but that the same was accepted under such circumstances as to raise a reasonable presumption that the defendant firm were acting improperly in making the pledge.
3. There is no evidence of any kind to support the charge of bad faith made against the defendant Bank or to show that the defendant Bank had any notice of any improper dealing on the part of the defendant firm in connection with the pledge. It has, on the other hand, been satisfactorily proved by the defendant Bank that bills of lading in respect of the goods in question were pledged with the Bank in the ordinary course of business by the defendant firm, who were and had been for three years customers of the Bank and who had had previously large transactions of a similar nature with the Bank and whose conduct in respect thereof had never given the Bank any cause for suspicion. The pledge was made to the Bank without any notice of the plaintiff's present claim, and thereupon the defendant firm was given credit in their 'account with the Bank for the full amount of the bills of exchange drawn against the goods represented by the bills of lading, and the defendant firm was subsequently permitted to draw against this credit by cheque, and the sums so drawn are somewhat in excess of the credit so allowed.
4. The pledge was effected either on or before the 7th December, and by the mail of the same date the bills of lading were despatched to the agents of the defendant Bank in London as security for the due realization from the drawers of the bills of exchange purchased by the defendant Bank. The bills of exchange were duly accepted and paid by the drawers, and it may be assumed therefore that the bills of lading and the goods represented thereby were in due course delivered to the consignees or their assigns.
5. The plaintiffs now claim as owners of the goods to recover from the defendants, E. A. Smith and W. Mumford as members of the firm of B. A. Smith & Co., and from the defendant Bank the goods sold under the circumstances mentioned to the defendant firm or the documents representing them, or in the alternative for payment of the price of the goods as damages
6. The suit is not defended by Messrs. Smith and Mumford, but the defendant Bank resists the plaintiff's claim on the ground first that the plaintiffs are not the owners either of the goods or the bills of lading, inasmuch as under the contract and the dealings had thereunder the property in the goods passed to the defendant firm, and that the defendant firm had good title to pledge the same with the defendant Bank, and, secondly, that if the property in the goods did not pass to the defendant firm or if their title to the bills of lading was otherwise defective, the pledge to the Bank was nevertheless valid under Section 178 of the Contract Act, inasmuch as the defendant Bank acted in good faith and the bills of lading were not obtained from their lawful Owner or from any person in lawful custody of them by means of an offence or fraud. The test which the law supplies for the determination of the question whether, under the circumstances, the property in the goods passed to the defendant firm as purchasers is contained in the provisions of Section 83 of the Contract Act.
7. That section provides:
Where the goods are not ascertained at the time of making the agreement for sale, but goods answering the description in the agreement are subsequently appropriated by one party for the purpose of the agreement, and that appropriation is assented to by the other, the goods have been ascertained and the sale is complete.
8. The goods in question were at the date of the contract unascertained. The sale therefore was not complete, unless there was an appropriation by the plaintiffs as sellers of the goods for the purposes of the contract, and that appropriation was assented to by the defendant firm as the purchasers. If there was such an appropriation by the plaintiffs, which was assented to by the defendants, then the sale was complete, involving by Section 77 the transfer of the ownership of the goods from the plaintiff to the defendant firm. In the present case it is shown that 1,000 bales of jute bearing the contract mark were appropriated to the contract by the plaintiffs, that they were sent alongside the Uganda and shipped in due course at the request of the defendant firm and that the mate's receipts granted in respect of the goods show that the goods so shipped were marked with the private mark of the defendant firm in red ink as required by their shipping instructions. Thereafter the defendant firm by the bills of lading obtained in respect of the goods, contracted as shippers of the goods for the despatch of the goods, and from the facts proved it may be reasonably inferred that the goods were delivered in due course in accordance with the agreement contained in the bills of lading. These facts in my opinion afford abundant prima facie evidence that the goods in question were appropriated to the contract by the plaintiffs, and that such appropriation was assented to by the defendant firm. The purchasers by their shipping instructions reserved the right to inspect the goods after they were sent alongside the ship and before shipment. There is no evidence to show whether the defendant firm did in fact examine the goods prior to shipment. If there was no such examination, then having regard to the fact that the private marks of the defendant firm were placed on the bales presumably by the marksman of the defendant firm, as would appear from the note to that effect contained in the shipping instructions, and that the goods were actually despatched and delivered in accordance with the bills of lading of the defendant firm, it may reasonably be inferred that this right to examine the goods was waived. My reasons for this opinion are substantially the same as those given for the conclusion arrived at under similar circumstances in the case of the Clive Jute Mills v. Ebrahim Arab (1896) I.L.R. 24 Calc. 177. It has been contended, however, that the appropriation, if any, in this case was not final, but conditional only on. payment of the price of the goods, and Clause 13 of the contract is relied on in support of this contention. Clause 13 is as follows:
Terms of payment: cash on delivery of mate's dock receipts or as provided for in clauses 8, 9 and 11. Should the said receipts or warrants be retained by the buyers for examination, they shall remain the property of the sellers and be held by the buyers in trust for and at the absolute disposal of the sellers, until payment has been made in cash in terms of this contract, and if payment be made by cheque, until such cheque has been cashed.
9. By virtue of this clause the plaintiffs had the right to retain the mate's receipts, though made out in the name of the defendant firm, until payment of the price of the goods, and when these mate's receipts were handed with the plaintiff's bills and other documents for examination to the defendant firm, the plaintiffs still remained the owners of the documents; and so long as the price of the goods remained unpaid, the defendant firm held these documents in trust for the plaintiffs.
10. The question is whether this clause, taken with the fact that the plaintiffs never paid for the goods, rendered the appropriation of the goods to the contract conditional only. It is said that the appropriation was conditional only because the intention of the plaintiffs as evidenced by the clause was to retain the jus disponendi, the right of disposal of the goods, until the price was paid. But it is clear, I think, that there is no reservation of the jus dis-ponendi by the clause in question. The clause gives no power to divert possession of the goods from the defendant firm and to make some other disposition of the goods not provided for by the contract. The defendant firm on the other hand could at any moment demand possession of the mate's receipts by tendering the price of the goods. The clause was intended to provide the plaintiffs with a security for due payment of the price of the goods by empowering the plaintiffs to hold possession of the mate's receipts and so to prevent the defendant firm from dealing with the goods, until the price was paid.
11. The case of Mirabeta v. The Imperial Ottoman Bunk (1878) 3 Ex. D. 164 relied upon by the plaintiffs seems to me to have no application to the facts of this case. There the shipper of the goods, who was also the seller, shipped the goods sold on board the vessel chartered by the purchasers, but the shippers took out the bills of lading to his own order, not intending that the purchaser should have the power of disposing of the goods or that he should assert any right of property therein, until payment, and the principle applicable to those circumstances was held to be that when a vendor ships articles, which he intends to deliver under the contract and takes the bill of lading to his own order, he thereby reserves to himself a power of disposing of the property, and that consequently there is no final appropriation. Clause 13 of the contract does not provide for any reservation of a right of this kind. The intention in my opinion rather was to give the plaintiffs a special property in the mate's receipts, even where as here standing in the name of the purchaser, which would enable the sellers to hold the documents as a security for payment as against the real owners of the goods. The clause in my opinion was intended to meet a situation such as has arisen in the present case. It contemplates the case where as here the sellers are not the shippers, but the purchasers are, and where, therefore, the sellers taking out mate's receipts on behalf of the purchasers require authority to retain them as security against the true owners. A clause of this kind providing for this security would be unnecessary, if the plaintiffs were themselves the shippers and the mate's receipts were in their own name.
12. There is, therefore, nothing in the contract to show that the appropriation of the goods to the contract was intended by the plaintiffs to be other than final and absolute. Moreover, there is ample evidence from which the assent of the defendant's firm as purchaser to this appropriation may properly be inferred. The sale therefore of the goods to the defendant's firm was complete and involved in the words of Section 77 of the Contract Act the transfer of the ownership of the goods from the plaintiffs to the defendant firm.
13. Assuming such transfer of ownership to be established, the plaintiffs contend that the title of the defendant firm to deal with the bills of lading was still incomplete and infirm, and that such infirmity of the title vitiated the pledge to the defendant Bank.
14. The case for the plaintiffs on this point is put in two ways, though the principle involved in each is perhaps the same.
15. It is said that the facts show that the defendant firm never intended to be bound by the contract, and that their object was to get the goods and not to pay for them and thus to defraud the sellers. This want of mutuality, it is argued, vitiated the entire contract and prevented its taking effect, and the property in the goods therefore remained unaltered. The answer to this argument is to be found in the case of Moyce v. Newington (1878) 4 Q.B.D. 32. Assuming that the defendant firm, who in this transaction were represented by the defendant E. A. Smith, intended from the outset to obtain possession of the goods without paying for them and the members of the firm have not thought it necessary to appear to answer the charge, it is laid down as settled law in the case referred to that though a seller is induced to sell by the fraud of the buyer, and though it is competent to the seller by reason of such fraud to avoid the contract, yet, until he does some act to avoid it, the property remains in the buyer; and that if he' in the meantime has parted with the thing sold to an innocent purchaser, the title of the latter cannot be defeated by the original seller.. An alternative rule leading to the same result, which would be equally applicable to the facts of the present case, is that where one of two innocent parties must suffer from the fraud of a third, the loss should fall on him, who enabled such third party to commit the fraud.
16. In the next place, the plaintiffs urge that the facts show that the defendant firm obtained the bills of lading from them by fraud, that the pledge was as regards the defendant firm an act of gross breach of trust, and that the transaction is not protected by Section 178 of the Contract Act. It may be conceded that the act of the defendant firm in parting with the mate's receipt in exchange for the bills of lading was a breach of trust for which they are responsible to the plaintiffs. But the act of the defendant firm in obtaining possession of the mate's receipts or in exchanging the same for the bills of lading did not give the defendant firm a right of disposing of the goods, which they did not otherwise possess. They had the right to dispose of the goods as owners, and in obtaining possession of the mate's receipts they obtained the means of exercising this right. And so when they obtained bills of lading in exchange for the mate's receipts they held possession of the bills of lading as owners, and they pledged these documents in that capacity. It was not the mere fact of the possession of the bills of lading which gave the defendant firm the right or opportunity of dealing with the goods, but their possession of the bills in their character as owners.
17. So when the shipper of certain goods sent the bill of lading to his agents to endorse and make over the same to the purchasers and the agent did so, but the agent afterwards retook the bill of lading and retained the same as security for payment for the goods, and where the bill of lading was in the agent's possession as security the purchaser by misrepresentation induced the agent to part with the bill and pledged it with a bank--it was held that the purchasers acquired no new title by their fraud, but merely obtained their own property and the means of effectually disposing of it. The reason for this view is thus stated: for here the person entitled to retain possession of the instrument, which represented the goods against the real owners, relinquished the possession of it to them and enabled them to deal, with the property in their true character as owners. Pease v. Gloahec (1866) L.R. 1 P.C. 219, 229.
18. Nor is this position of the defendant firm affected by the provisions of Section 178 of the Contract Act. This section protects innocent pledgees, who have been induced to deal with persons holding documents of title to goods. By the proviso to the section cases where documents of title have been obtained from the lawful owner or from any person in lawful custody of them by means of an offence or fraud are expressly excluded from protection. But the pledge to the defendant Bank by the defendant firm as owners of the goods would not seem to fall within either the section or the proviso. Assuming, however, that by virtue of Clause 13 of the contract the plaintiffs were the owners of the mate's receipts as distinguished from the goods they represented, and that the defendant firm were in possession of the receipts as trustees for the owners, still the language of the section would be inapplicable to the facts of this case. The mate's receipts are not documents of title. Moreover, supposing on the assumption made that the bills of lading, when obtained from the shipping agents, came into the possession of the defendant firm impressed with an undertaking or promise or trust not to part with them, until payment of the price of the goods--it does not follow nor would it be the fact that the plaintiffs were the lawful owners of the bills of lading or that the bills of lading were in their lawful custody within the meaning of the proviso.
19. Further, the breach of the trust or undertaking in parting with the bills of lading to the defendant Bank so far as the transaction with the Bank is concerned would be immaterial, because it has been shown that the defendant Bank acted in good faith and under circumstances which are not such as to raise any presumption that the defendant firm were acting improperly.
20. For all these reasons I must hold that the pledge of the goods with the defendant Bank was a valid and binding transaction, and accordingly the suit as against the Bank must be dismissed with costs. There will be a decree [for the full amount claimed as against the defendants Smith and Mumford with liberty to the plaintiffs, if necessary, to prove as against them in their insolvency for the judgment-debt.