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1971 Supreme(MP) 56
HIGH COURT OF MADHYA PRADESH
SHIVDAYAL & S.B. VYAS, JJ.
Poonamchand Shankerlal & Co. (Firm)
Vs.
Dipchand Siremal (Firm)
F.A. No. 1 of 1964
Decided on : 14.4.1971
M.L. Seth for appellant
K.B. Saxena for respondent no.2
R.K. Vijayavargiya for respondent no. 3
None for respondent no.1
Headnote:(1) Contract Act, 1872 – S.178 – object of the section – is an exception to the maxim Nemo Dat Quad Non Habet-object of the exception.
Section 178 of the Contract Act provides an exception to a fundamental rule of the law of transfer of property that no man can give a better title than he himself possesses, the latin maxim being “Nemo Dat Quod non Habet”. As a corollary of this fundamental rule, no one can pledge goods unless he is the owner or lawfully represents the owner. Consequently, if a person obtains a pledge of goods from another who was no valid title to make a pledge; the former acquires no security over them. But another principle of law came to be developed for the protection of commercial transactions. That other principle is that a person who takes from one who is known to be mercantile agent and who is in possession of the goods, gets a good title provided he acted in good faith and had no notice that the pledgor had no title or authority to pledge. Under the first principle if a person deals with goods of another without his authority or consent, the transaction is nugatory against the owner. The second principle steps in to protect those who in good faith deal with a mercantile agent who is known to them as such and who is in possession of the goods. The reason of this second rule which is embodied in section 178 of the Contract Act is that trade will be hampered and business will be deranged and great loss will be caused frequently to innocent persons acting in good faith.
The law, therefore makes possession as conclusive evidence of ownership so far as it is necessary to protect a pledge who acts in good faith and has no notice that the pledgor has no authority to pledge. The principle underlying this second statutory rule is that when one of two innocent persons has to suffer the loss occasioned by an act of a third person, such loss must be borne by the owner because by appointing him as agent he brought about the loss to the third person and because he placed the agent in the position which enabled him to do an act causing the loss to an innocent party. (Para 8
(2) Sale of Goods Act, 1930-S.2(9)-Contract Act, 1872 – S.178-mercantile agent – person usually carrying on business of a pakka adhatiya – is a mercantile agent.
For the application of section 178 of the Contract Act even this much is sufficient that the agent was usually carrying on business of a pakka adhatiya because in that case a pledge from that person would be fully protected merely on showing that the goods were in possession of that agent. Where the goods were in possession of a pakka adhatiya with the consent of the owner, the agent was a mercantile agent as defined in section 2(9) of the Sale of Goods Act. (Paras 9, 10, 11 & 13
Section 178 of the Contact Act has five elements : (1) the pledgor must be a mercantile agent, (2) the pledgor must be in possession of the goods or of title deeds within the meaning of Sale of Goods Act, (3) the mercantile agent was in such possession with the consent of the owner, (4) the mercantile agent made the pledge while in the ordinary course of business of mercantile agent and (5) the plegdee acted in good faith and had no notice at thetime of the contract of pledge that the pledgor had no authority to pledge. (Para 18
(4) Evidence Act, 1872 – S.101 – bad faith – burden of proof – is on party alleging it.
The party who seeks to impugn what is ex facie a valid disposition must be held to assume the burden of showing bad faith. AIR 1938 PC 152 relied on. (Para 18
Shiv Dayal, J.- 1. This appeal is from the dismissal of the appellant’s suit for recovery of 115 bales of cotton, or, alternatively, Rs.39,163 and paise 25 with interest at the rate of paise 50 percent per month against the 5 defendants.
2. The plaintiff firm Poonamchand Sakarlal and Co., is a registered partnership firm carrying on business in cotton seeds etc. at Bombay. Ladhabhai (defendant No.1) and his son Dhanji (defendant No.2) are carrying on business as Adhatiya (commission agent) in the name and style “Dhanji Ladhabahi” at Ujjain. Dhanji was the Karta of the joint Hindu family firm Dhanji Ladhbhai. The plaintiff firm used to purchase and sell cotton and cotton seeds through Dhanji Ladhabhai after getting it ginned and baled at Ujjain. The plaintiff’s case was that on being informed by defendant No.2 Dhanji, that he had 279 bags of loose cotton in stock in balance of account and no purchaser was available at Ujjain. (Dhanji’s letters dated March 3, and March 23, 1952) the plaintiff directed him to get the cotton bailed and to deliver for that purpose the bags of cotton of M/s Sukhdeo Cotton Press Company, Ujjain. Later on, the plaintiff directed the firm Dhanji Ladhabhai
To transfer 100 bales to M/s Mangoolal Treekamlal of Bombay in the account of M/s Sukhdeo Cotton Press Company, Ujjain. But these instructions were flouted by Dhanji Ladhabai. Eventually, the plaintiff came to know that said firm had fraudulently managed to pledge the bales with the firm Deep Chand Siremal, Ujjain (Defendant No.3) and the latter had pledged them with the Punjab National Bank Ltd. Ujjain (defendant No.4). The plaintiff then served defendants Nos.3 and 4 with notice intimating them that defendant No.2 had no title to the goods and he had wrongfully and dishonestly
Converted them to his own use. The bales ought to have been restored to the plaintiff’s firm free of all encumbrances but the defendants paid no heed to the plaintiff notices. The bales had been ultimately sold to Khan Saheb Seth Nazar Ali Alabux, Cotton Weaving and spinning Mills, Ujain (defendant No.5). The plaintiff laid his claim against all the defendants primarily on the ground that defendant No.2 had no title to the goods and, therefore no, right to pledge the plaintiff’s bales; alternatively on the ground that the pledge transactions were sham and fictious and as a result of fraud and collusion between defendant’s 1 to 4.
3. The suit was resisted by all the defendants Firm Deepchand Siremal (defendant No.3) denied that there was any fraud or collusion or that defendant No.2 had no right to pledge the bales. It was specifically pleaded by that defendant that defendant No.2 had been carrying on business as Pakka Adhatiya for some years and there was no reason to suppose that he was not the owner of the bales. The defendants took the plea of being bona fide transferees in good faith for value and without notice of the plaintiff’s title.
4. The trial Court held that the plaintiff firm was the owner of the suit goods (115 bales of cotton), that the title in the goods remained vested in the plaintiff firm and did not pass to the firm Dhanji Ladhabahai and that the latter fraudulently and without any right pledged the goods with the firm Deepchand Siremal (defendant 3); but the pledge by the latter firm in favour of the Punjab National Bank was neither fraudulent nor dishonest. The trial Court further held that there was no collusion between the defendant on these findings it held that the plaintiff was not entitled to the price of the goods from defendants Nos. 3, 4 or 5 and in the result it dismissed the suit against them. However, it held defendants No.1 and 2 liable to pay the plaintiff firm Rs.37,925 as price of 115 cotton bales with interest by way of damages at the rate of 6% per annum up to the date of the suit and future interest on that sum at the rate of 4% per annum from the date of the suit (October 16, 1952) till realization.
5. Aggrieved by the dismissal of
