Anantanarayanan, J.-

This appeal is instituted by the third defendant in the Court below. The Nadar Bank, Ltd., Madurai, against the

judgment and decree of the learned Additional Subordinate Judge of Madurai in O.S. No. 155 of 1952, which was a

suit instituted by the Canara Bank, Ltd. (Plaintiff) for recovery of a sum of Rs. 21,017-6-0 from two merchants, first

and second defendants, which was decreed with costs. As the appeal involves certain interesting questions of law and

fact relating to the priority of what are known in mercantile and banking practice as loans upon the security of goods

under the “ open credit” system, as against similar advances under the “ key-loans” system, we shall first set forth the

broad and indisputable facts, before formulating the points that arise for our determination.

The facts are that defendants 1 and 2 are members of an undivided Hindu family carrying on business in grains and

cereals under the name and style of ‘V.M. Sankarapandia Nadar’ at Madurai. The Madurai branch of the Nadar Bank

Limited (hereinafter termed the appellant Bank) was giving credit facilities to defendants 1 and 2, as regular customers,

for the past nearly 15 years. The accounts show that the last cash credit transactions of defendants 1 and 2 with the

appellant Bank were closed on 22nd February, 1952. From about 1949, defendants 1 and 2 were also having a current

account with the Canara Bank, Limited (hereafter termed the plaintiff Bank). They took “key-loans” from the plaintiff

Bank of Rs. 19,500 on 4th January, 1952 and Rs. 14,500 on 20th February, 1952. While matters stood thus, the

appellant Bank gave cash credit accommodation to the limit of Rs. 40,000 to defendants 1 and 2 for the year

commencing from 1st March, 1952. Under Exhibit B-7, which is a vital document in the case, the cash credit was

obtained upon security of goods under the “ open credit system” in the following four godowns namely 31, Chintamani

Road; 5, Gurusadi lane; 11, Panthadi 7th lane; and 9, Panthadi 1st lane, and also upon the security of certain immovable

property (2, Ponnammal Road). On 20th March, 1952, the appellant Bank split the credit facilities of defendants 1 and

2 into two categories, namely, Rs. 20,000 on “open credit” and Rs. 20 000 upon “key-loans” (Exhibit B-15).

On 27th March, 1952 , defendants 1 and 2 also approached the plaintiff Bank for a “key-loan” of Rs. 6,600 on pledge

of their goods in door No. 9, Panthadi 1st lane (exhibit A-4). On 4th April, 1952 defendants 1 and 2 took a “key-loan”

of Rs. 14,350 from the plaintiff Bank on pledge of goods in Godown 11, Panthadi 7th lane and another godwon. Under

the “open credit” system and the terms of the agreement Exhibit B-7, defendants 1 and 2 were bound to submit returns

of stock periodically, by the week, and they did not do so after Exhibit B-17 dated 2nd April, 1952. On 15th April,

1952, a godown clerk of the appellant Bank is said to have demanded the statement from defendants 1 and 2, who

promised to send it the next day. As they did not do so, the clerk (D.W. 1) went and inspected the godowns, and found

the doors of Nos. 9 and 11 locked with the locks of the plaintiff Bank. Subsequently, disputes for priority arose

between the two Banks, and the appellant Bank also filed a criminal complaint against the first defendant (C.C. No.

1101 of 1952, Sub-Magistrate, Madurai). After the plaintiff filed the present suit, a Receiver was appointed by the

Court for sale of the goods in the three godowns, and certain realisations have been made, admittedly far below the

value of the goods as originally shown.

Before proceeding to enunciate the points in controversy, it is necessary to have a clear idea of the features of the “open

credit” system and the terms of the agreement Exhibit B-7, as well as the features of the “ key-loan” system. Exhibit

B-7, in particular, is of great importance, for this document and the subsequent returns submitted by defendants 1 and 2

to the appellant Bank i

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