1. In this case the defendant No. 1 employed the defendant No. 2 to take delivery of a parcel of jute which he had dispatched to the Chitpur station of the East Indian Railway. The jute was consigned by the defendant No. 1 to himself, so that the railway receipt was made out in his name as consignee. Without endorsing the receipt he entrusted it to the defendant No. 2 for the purpose of obtaining delivery. The defendant No. 2, therefore, had implied authority to do all that was necessary for that purpose, including authority to endorse the receipt in the name of the defendant No. 1.
2. What happened was that the defendant No, 2 took the receipt to the plaintiffs, and representing himself to be the partner of the defendant No. 1, asked for a loan for which he offered the receipt as a, pledge. The plaintiffs requested him to get the receipt endorsed by the consignee. Two days later the defendant No. 2 again presented the receipt to the plaintiffs with an endorsement upon it purporting to be signed by the defendant No. 1 and to authorize delivery- to Nanda Lal Dutt, the servant of the plaintiffs, The endorsement including the signature was in fact written by the defendant No. 2.
3. The plaintiffs then took delivery and on the security of the goods paid the defendant No. 2 Rs. 1,011 by way of loan together with Rs. 30 for the railway freight. He fraudulently appropriated the money for his own purposes.
4. In a original case instituted by the defendant No. 1, the plaintiffs were charged with collusion with the defendant No. 2 and an order was made prohibiting them from selling the jute. They accordingly instituted this suit to establish their rights as pawnees. The jute is now in their godowns. Their claim is contested by the defendant No. 1, the defendant No. 2 not having appeared. In the trial Court the suit was dismissed. The plaintiffs succeeded in the lower Appellate Court and this appeal has accordingly been preferred by the defendant No. 1.
5. On the facts found in the Courts below it is finally established that the plaintiffs anted honestly in this transaction and the question is which of two innocent parties should suffer for the knavery of the defendant No. 2.
6. It is clear, and has so been found, that the defendant No. 2 had no authority from his principal to pledge either the railway receipt or the goods it represented with the plaintiffs. Under the general law of principal and agent, the loss would prima facie fall on the plaintiffs. The Additional District Judge has invoked the principle that where one of two innocent parties must suffer for the fraud of a third, the loss should fall on him who enabled such third party to commit the fraud.' It is unsafe to employ that principle as a separate and independent ground of decision. As to estoppel it is not suggested that the defendant No. 2 was that sort of agent whose ordinary business it is to sell or pledge goods, and his mere possession of the indicia of title with the consent of the defendant No. 1 is probably not by itself sufficient to create an estoppel against the latter, but that question was not discussed.
7. The plaintiffs found their case on the provision contained in Section 178 of the Contract Act, which no doubt, so far as it goes, and in the cases to which it applies, modifies the general law and gives statutory effect to the principle on which the Additional District Judge relied. The extent to which for the present purpose that principle is operative is measured by the terms of the section.
8. The section consists of a sweeping provision to which the plaintiffs appeal, and two provisos. So far as it is material, it runs as follows:
A person who is in possession of any goods or of any bill of lading,...or warrant or order for delivery, or any other document of title to goods, may make a valid pledge of such goods or document:
Provided that the pawnee acts in good faith, and under circumstances which are not such as to raise a reasonable presumption that the pawnee 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.
9. On the questions which arise under that section, the Courts below have for the most part taken diametrically opposite views, and it is well to say that on questions of fact we are bound by the conclusions arrived at by the lower Appellate Court.
10. The first point in controversy arises on the meaning of the word 'possession'. If the section be construed as it stands, apart from authority, it would at least be a possible view that the word was used in its ordinary and natural sense and that the draftsman or the Legislature intended to include all possession recognized as such by the law, and to leave it to the two provisos to limit the scope of the general rule enacted in the first clause. The law has by degrees attached more and more importance in this connection to the possession of the indicia of title of Cahn v. Pockett's Bristol Channel Steam Packet Co. (1899) 1 Q.B. 613 at pp. 656; 660 : 68 L.J.Q. B. 515 : 80 L.T 269 : 47 W.R. 422 : 8 Asp. M. C. 516 : 15 T.L. R. 247 : 4 Com. Cas. 168. There are however, decisions in India which limit the meaning of the term 'possession' as used in Sections 103 and 178 of the Indian Contract Act, and it was argued for the defendant No. 1 that the defendant No. 2 had not such possession as Section 178 contemplates. The contention that he was a mere servant, which found favour with the Munsif, cannot be supported in view of the clear finding of the Additional District Judge, that he was an agent. If he was an agent, his possession (apart, for the moment, from any question arising under the second proviso) would appear to fulfil the requirements suggested by the case law. He had the indicia of possession and his possession was acquired under such circumstances that the owner of the goods, although he had parted with the possession, could give instructions to him as to their disposal Greenwood v. Holquette 12 B.L.R. 42 : 20 W.R. 467 if the defendant No. 2 had in fact no authority to pledge the goods, there was nothing to prevent his having such authority and' there was little difficulty in leading the plaintiffs to believe that he had. In my opinion the defendant No. 2 had possession within the meaning of Section 178 both of the railway receipt and of the goods it represented.
11. The Munsif found expressly that the railway receipt was a document of title', and the finding is impliedly adopted by the Additional District Judge [see also the case in Bank of Bombay v. Nandlal Thackerseydas 17 Ind. Cas. 663 : 40 I.A 1 : 17 C.W. N. 358 : 12 M.L.T. 645 : (1913) M.W.N. 29 : 15 Bom. L.R. 1 : 24 M.L.J. 176 : 17 C.L.J. 146 : 37 B. 122 (P.C.). In any case the point is not one of much importance, as the pledge came ultimately to be a pledge not of the railway receipt but of the goods, and if any question arises, it arises not under the opening clause of the section, but under the second proviso. I shall deal with that later.
12. The next point is whether the plaintiffs acted in good faith within the meaning of the first proviso. The Additional District Judge, dissenting from the Munsif, held that they acted as reasonable and prudent men would naturally do. That appears to be a reasonable conclusion of fact and no error of law is disclosed which would justify us in differing from it even if we desired to do so. The last point is whether the defendant No, 2 obtained the railway receipt, or the goods, from the defendant No, 1 or from the railway company 'by means of an offence or fraud' within the meaning of the second proviso. The Munaif answered that question, so far as the goods are concerned, in the affirmative. The Additional District Judge, on the other hand, held that as the defendant No. 2 was in lawful possession of the railway receipt and had authority to take delivery of the goods from the railway, be was in a position to make a valid pledge of the goods to the plaintiffs. I concur in that view. The railway receipt represented the goods and the defendant No. 2 from the time the receipt was handed to him for the purpose of taking delivery was in possession of the goods. The custody of the railway was custody for the defendant No. 1 or any person he might authorize to take delivery. There was no fraud upon the railway when delivery was obtained on the strength of the endorsement signed by the defendant No. 2 in the name of the defendant No. 1. The defendant No. 2, as has been stated, was authorized to do all that was necessary for the purpose of obtaining delivery. It is immaterial that delivery was actually taken by the plaintiffs. In substance, as distinguished from the machinery by which the transaction was carried through, the defendant No. 2 took delivery of the goods from the railway as he was authorized to do and then fraudulently pledged them with the plaintiff.
In the result I would dismiss the appeal with costs.
Shamsul Huda, J.
13. I agree.