Judgement Appeal from a decree of the High Court (January 20, 1910) reversing a decree of Beaman J. (March 8, 1909). The action was brought on November 19, 1904, by the respondent against the appellant bank and one Lakhmidas Naronji, who did not defend, to recover 399 bales of cotton or Rs. 34,225 the value thereof. The respondent alleged (in substance) that he entrusted the said 399 bales to the second defendant to be held by him as muqaddam, i.e., warehouseman; that the defendant purported to pledge them to the bank, but that he was not in possession of the said bales, having merely the custody of them on the respondents behalf; and that the bank did not act in good faith, and took the goods under circumstances which were such as to raise a reasonable presumption that the second defendant was acting improperly in making such a pledge. The respondent also claimed that the bank was fully secured in respect of all moneys owing to them by the second defendant by pledges of cotton which the second defendant had validly and properly made to them, and that the bank was bound to resort first of all to such properly pledged cotton to make good the moneys- owing to them by the second defendant, and in any event the plaintiff claimed to stand in the shoes of the second defendant and to enforce against the bank the rights which the second defendant would have had against the bank. The case for the appellants was that as respects the cotton which came into their possession they were protected by a valid pledge thereof, and they denied that they were otherwise sufficiently secured. The points raised in the appeal were (a) Was the bank protected from liability by s. 178 of the Indian Contract Act, 1872 ? (b) Was the bank protected from liability by reason of the fact that before the goods were demanded from them, by the respondent they had parted with the possession of them to the person from whom they received them, i.e., the second defendant, and without any notice of the respondents alleged title ? Sect. 178 of the Indian Contract Act, 1872 (Act IX. Sect. 178 of the Indian Contract Act, 1872 (Act IX. of 1872), is as follows — "A person who is in possession of any goods, or of any bill of lading, dock-warrant, warehouse-keepers certificate, wharfingers certificate, 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 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." Beaman J. held that the second defendant Lakhmidas had possession of the goods within the meaning of s. 178; that the bank had acted in good faith, and did not receive the goods under circumstances which raised a presumption of improper dealing by the said defendant. He gave the respondent a decree against Lakhmidas for the full amount claimed, but dismissed it without costs against the bank. The High Court in appeal decreed in the respondents favour against the bank for the full amount claimed. Basil Scott C.J. held that the pledge with the bank by defendant 2 was invalid under the second proviso to s. 178 of the Contract Act, inasmuch as he found that the 399 bales had been obtained by defendant 2 from the plaintiff (whom he held to have been their lawful owner) by means of an offence or fraud, he having obtained them on the pretence of holding them as a muqaddam but with the intention of pledging them with the bank. Batchelor J. agreed with the above finding and also held (the Chief Justice concurring) (1.) that the respondent, if not the actual owner of the bales, had sufficient interest in him to entitle him to bring the suit; (2.) that all the 399 bales went into the banks godowns; (3.) that defendant 2 being in custody of the bales as a mere warehouseman had not such possession as would under s. 178 enable him to make a valid pledge to the bank; (4.) that in any event the pledge was invalid under the first proviso to the section, inasmuch as the knowledge of the banks servant Chunilal as to the position and dealings of defendant 2 ought to be imputed to the bank, and that they were therefore put upon inquiry as to his right to pledge the bales ; and (5.) that the bank had been guilty of conversion, the return of the bales to defendant 2 (the evidence of which the learned judge held to be both admissible and conclusive) being under the circumstances of the case no answer to the plaintiffs claim. The material passage in the judgment of the Chief Justice is as follows " The line of defence which was ultimately adopted on behalf of the bank was based upon the discovery at a late stage of entries in the books of Lakhmidas which indicated that the goods in question had been sold in or about] June, 1903, by Lakhmidas and that delivery of them had been given from the banks godowns. It was argued that these sales were prior in date to any formal demand by the plaintiff and that on the authority of certain obiter dictum of Bigham J. in Union Credit Bank, Ld. v. Mersey Docks and Harbour Board ([ 1899] 2 Q. B. 205.) it should be held that the bank were not guilty of any conversion. It appears to me that the defendants cannot succeed in this contention. Lord Chelmsford in Hollins v. Folder (( 1874) L. R. 7 H. L. 757, at p. 795.) said Any person who, however innocently, obtains possession of the goods of a person who has been fraudulently deprived of them, and disposes of them, whether for his own benefit or that of any other person, is guilty of a conversion. Lord Chelmsford in Hollins v. Folder (( 1874) L. R. 7 H. L. 757, at p. 795.) said Any person who, however innocently, obtains possession of the goods of a person who has been fraudulently deprived of them, and disposes of them, whether for his own benefit or that of any other person, is guilty of a conversion. The return of the goods relied upon by the bank is a delivery to Lakhmidas vendees, not a return of the bales to be held by Lakhmidas as plaintiffs muqaddam free of any lien of the bank. The bank by the unauthorized and fraudulent act of their godown keeper Ardeshir which in the stress of argument is now adopted and ratified gave delivery to the plaintiffs vendees and would thereupon be guilty of conversion even if they had not exercised dominion over the goods for a few months previously as security for advances to Lakhmidas." Sir A. Cripps, K.C., H. A. McCardie, and H. St. J. Field, for the appellants, contended that the goods in action had been validly pledged to the bank under s. 178 of the Indian Contract Act, 1872, and that the section had been wrongly construed by the High Court. But independently of that section on the evidence the bank had not been guilty of any conversion and had not committed any actionable wrong against the respondent. It had no knowledge actual or constructive of the respondents title to the goods. It received them in good faith from the second defendant and restored them to him or his order without knowing and without any reasonable grounds for suspecting that he was acting dishonestly. The proviso (1.) of s. 178 did not apply, for there was no evidence of even constructive notice that the second defendant was not the owner of the goods or that he was a muqaddam as well as a merchant or had any unusual facilities for dealing with the goods of others, and there was evidence of long and continuous dealing with the bank as a merchant of credit and respectability. They referred to Union Credit Bank v. Mersey Docks and Harbour Board ([ 1899] 2 Q. B. 205, 214.) ; Hollins v. Fowler (L. R. 7 H. L. 757.) ; Spackman v. (( 1883) 11 Q. B. D. 99, 101.), cited with approval in Miller v. Dell ([ 1891] 1 Q. B. 468, 473.); National Mercantile Bank v. By mill. (( 1881) 44 L. T. 767.) The respondent claimed in the alternative to compel the bank to marshal its securities by resorting first of all to those goods which the second defendnt had validly pledged as being his own property. But it was proved by the evidence that the goods had been delivered up to the second defendant before they were demanded by the respondent, who, moreover, had shewn no ground for claiming such a general account of all dealings between the bank and the second defendant as would be necessary in order to marshal the securities in the manner suggested. The appellant asked to be allowed to amend his defence by pleading that the cotton had been returned to the second defendant or his order. This was refused, but the Court allowed evidence of that return to be given in answer to the alternative case, and it was submitted rightly, and that the evidence when admitted was admitted for all purposes. As to the right to the amendment see Anderson v. Smith, (( 1860) 29 L. J. (Ex.) 460.) Atkin, K.C., and Lowndes, for the respondent, contended that he was shewn on the evidence to be the owner of the goods in action, and that they had been wrongfully pledged to the bank by the second defendant, in whose possession they were in his capacity of muqaddam or warehouseman. Both Courts had held that the respondent had sufficient interest in them to entitle him to sue. The bank received them under circumstances which raised a reasonable presumption that the second defendant was dealing improperly with them. It knew or must be taken to have known that the second defendant was doing business as a muqaddam and would necessarily have in his possession a large number of bales which he would have no right to pledge, and was accordingly put upon inquiries which in fact were not made. The bank therefore had no defence under s. 178 of the Contract Act and had been guilty of conversion of the goods. The bank therefore had no defence under s. 178 of the Contract Act and had been guilty of conversion of the goods. Evidence had been allowed to be given that the bank had returned the goods to the second defendant, although the return had not been pleaded. The pledge was invalid, and there was evidence, which the Appellate Court believed, that the goods had been obtained from the respondent by fraud; a wrongful dealing with them which put an end to the bailment. They referred to Hilbery v. Hatton (( 1864) 2 H. & C. 822.); Bullen and Leake, Nisi Prius, 6th ed., p. 344; Hollins v. Fowler. (L. R. 7 H. L. 757, 795.) The measure of damages in an action for conversion was the value of the goods see Mulliner v. Florence (( 1878) 3 Q. B. D. 484.); Union Credit Bank v. Mersey Docks and Harbour Board ([ 1899] 2 Q. B, 205.); Cooper v.. Willomatt (( 1845) 1 C. B. 672.); McCombie v. Davies ((1805) 6 East, 538.); and Fine Art Society v. Union Bank of London. (( 1886) 17 Q. B. D. 705.) The evidence to the effect that the bank had in fact returned the goods to the order of the second defendant vas wrongly admitted and was insufficient except as regards a small portion as to which there was no dispute. The amendment raising that defence was rightly rejected by the first Court see Chova Kara v. Isabin Khalifa. (( 1875) I. L. R. 1 Bomb. 209.) If the pledge to the bank were valid the respondent was entitled to stand in the stead of the second defendant and the bank was liable to account for all the goods entrusted to it The respondent would be entitled to be paid out of any balance found to be due and if necessary to have the securities held by the bank from the second defendant marshalled in his favour so that he should have the benefit of goods validly pledged. Sir A. Cripps, K.C., in reply. The judgment of their Lordships was delivered by LORD MACNAGHTEN. This is an appeal from an order and decree of the High Court of Bombay in its appellate jurisdiction reversing the order and decree of Beaman J., who tried the case originally. Sir A. Cripps, K.C., in reply. The judgment of their Lordships was delivered by LORD MACNAGHTEN. This is an appeal from an order and decree of the High Court of Bombay in its appellate jurisdiction reversing the order and decree of Beaman J., who tried the case originally. The trial judge dismissed the suit without costs as against the first defendants, the Bank of Bombay, who are the present appellants. The Court of Appeal, consisting of Scott C J. and Batchelor J., made a decree in favour of the plaintiff, with costs. The plaintiff, a merchant in Bombay, by his plaint, which was ; filed so far back as November, 1904, claimed delivery of 399 bales of cotton which had been entrusted to the second defendant Lakhmidas as muqaddam or warehouseman and, as the plaintiff alleged, improperly pledged by him to the bank. In the alternative the plaintiff claimed payment of the value of the bales in question, and in the event of it being held that he was not entitled to any such relief as aforesaid, then he asked that his rights should be ascertained and declared, suggesting that the securities deposited by Lakhmidas with the bank should be marshalled in his favour. The case was not brought to a hearing until January, 1909. For this delay both parties seem to have been equally to blame. Various irrelevant issues were raised and various irrelevant defences were set up, and there were interlocutory applications protracted and all apparently futile. Both parties seem to have been in the dark as to the real facts of the case, which were not elucidated until the suit was at hearing, though apparently the plaintiff might have discovered the facts from Lakhmidas books which were accessible to him, and the bank ought to have been able to produce an accurate record of their dealings with their customers. There were twenty-one issues originally settled. In the course of the hearing an additional issue was proposed by the learned counsel for the bank, and allowed without opposition on the part of the plaintiff. It was in the following terms "Whether the bank has been guilty of any conversion in respect of the goods in suit? "Upon that issue the case ultimately turned. The material facts as ascertained during the trial may be stated shortly. It was in the following terms "Whether the bank has been guilty of any conversion in respect of the goods in suit? "Upon that issue the case ultimately turned. The material facts as ascertained during the trial may be stated shortly. Lakhmidas, though now insolvent and under sentence of imprisonment for criminal breach of trust, was in good credit in the early part of 1903 and then carrying on business in Bombay both as a cotton merchant on an extensive scale and also as a muqaddam or warehouseman. He was financed by the bank, and in the habit of pledging cotton with the bank to secure his account for cash advances and cash credits, and in the habit of withdrawing parcels of cotton so pledged when and as he disposed of them in the course of his business, leaving of course an amount sufficient to cover his liability to the bank or else substituting other cotton for the cotton so withdrawn. At that time the managers of the bank had no reason to suppose that Lakhmidas was carrying on any business but that of a cotton merchant. They were assured that he had given up the business of a muqaddam, which at one time was carried on by his firm, though undoubtedly a man in their employ, whose duty it was to obtain information for the bank with regard to their customers, was aware that Lakhmidas was carrying on the business of a warehouseman as well as that of a cotton merchant. This man seems to have been in partnership with Lakhmidas or in collusion with him. In February, 1903, the plaintiff as purchaser of the bales in question in this suit, or in some other manner interested therein, took delivery of them and entrusted them to Lakhmidas as warehouseman. Lakhmidas immediately pledged them with the bank. For a time they were deposited in the open air jettha at Colaba, which is said to have been leased by him in the name and on behalf of the bank. About the end of April or early in May, 1903, on the approach of the monsoon all the cotton in the possession of Lakhmidas at Colaba was removed by him into godowns leased by the bank and placed there in the banks custody. About the end of April or early in May, 1903, on the approach of the monsoon all the cotton in the possession of Lakhmidas at Colaba was removed by him into godowns leased by the bank and placed there in the banks custody. In June and July, 1903, all the bales of cotton in suit, with the exception of two (as to which there is no question now), having been sold by Lakhmidas were withdrawn from the banks go-downs and passed out to Lakhmidas or to his order. No claim to this cotton was made by the plaintiff against the bank before it passed out of the hands of the bank. The bank had no notice or reason to suspect that it belonged to any one but Lakhmidas, or that any one but Lakhmidas had any right or title thereto or any interest therein. The fact that the cotton was returned to Lakhmidas, or parted with to his order, was established during the cross-examination of Lakhmidas, called as a witness by the plaintiff, and proved by inspection of his books. The plaintiff strongly objected to any evidence being given as to this fact inasmuch as it had not been pleaded by the bank as a defence to the suit. But the learned judge held, and in the opinion of their Lordships held rightly, that the fact could not be excluded having regard to the claim to marshal securities set up by the plaintiff. If the evidence on this head was properly admitted it seems to their Lordships that it must be admissible for all purposes. Their Lordships think that the fact that the bank parted with the cotton deposited with them to or to the order of the person by whom it was deposited without notice of any claim by any other person affords a complete defence to the suit. Their Lordships agree in the finding of the learned trial judge that the bank acted throughout in good faith—a finding which does not seem to have been questioned on the appeal to the High Court. Their Lordships agree in the finding of the learned trial judge that the bank acted throughout in good faith—a finding which does not seem to have been questioned on the appeal to the High Court. Nor indeed do they think that there would have been any imputation on the conduct of the bank if the managers of the bank had known that Lakhmidas was a muqaddam as well as a cotton merchant, though of course for their own protection they would have been careful in dealing with him, if they dealt with him at all, had they known that he carried on both businesses. No one is bound to suspect dishonesty in a person of good credit and reputation with whom he is dealing merely because that person occupies a position which would enable him to act dishonestly if he were a rogue. Taking the view which their Lordships do of this case, it is unnecessary for them to express any opinion on the construction of s. 178 of the Indian Contract Act, 1872. Having regard to the loose manner in which the business of the bank was conducted, and the way in which the suit was defended, their Lordships are of opinion that the appellants are not entitled to any costs. Their Lordships will therefore humbly advise His Majesty that the order appealed from should be discharged without costs, any costs already paid being repaid, and that the order of Beaman J. should be restored. There will be no costs of the appeal.