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Judgment
Govinda Pillai, J.—The plaintiff is the appellant. The sole respondent is defendant 2, and he has not entered appearance in spite of personal service of notice of appeal on him. Defendant 1 in the case owed money to the plaintiff and on settlement of accounts it was found that Rs. 3000/- was due to the plaintiff on 12-4-1122. For that amount defendant 1 executed a security bond giving defendant 1''s car as security for the loan. That car was a Plymouth motor car, 30 Horse power, 1936 model, Sedan body, then bearing registration No. M.D.R. 344, and subsequently registered in Travancore as T.R.V. 4657. The security bond is Ext. B. It was mentioned there that the registration certificate of the car had been sent to Madras for effecting change of ownership in favour of defendant 1 and that the same would be handed over to the plaintiff on receipt.
The plaintiff stated that he understood that defendant 1 was attempting to transfer the car benami in the name of defendant 2 with a view to defeat and delay the plaintiff, that defendant 2 was at all relevant times fully aware of the security bond executed by defendant 1 to him, and that he was to get a decree against defendant 1 and the car for realisation of the amount.
Defendant 1 remained ex part. Defendant 2 contended that he had no knowledge about the security bond Ext. B in favour of the plaintiff or about the transaction between the plaintiff and defendant 1, that he came to know about the security bond only after the suit, that the security bond was invalid and inoperative as against the car, that he had purchased the car from defendant 1 ''bona fide'' by paying Rs. 3500/- as its value on 26-7-1122, that the registration certificate was handed over to him on the same day, that the transfer was duly recognised by the Inspector-General of Police under the Motor Vehicles Act, that after he purchased the car he had changed several parts spending about Rs. 2000/- from his own pocket and that the plaintiff was not entitled to any relief prayed for in the plaint as against the car.
The Court below found that the amount shown in the plaint was due from defendant 1 to the plaintiff, that defendant 1 had executed Ext. B security bond pledging the disputed car also, that the car had been sold by defendant 1 to defendant 2, that as the plaintiff was not put in actual possession of the car he could not enforce the bond against the car and that defendant 2 was a ''bona fide'' purchaser for value without notice of any defect in title of defendant 1. Thus the suit was decreed against defendant 1 and it was dismissed as regards the plaintiff''s claim against the plaint schedule car and defendant 2.
A reading of Ext. B would show that the car was not really pledged by defendant 1 to the plaintiff. Exhibit B was intended to operate as a hypothecation so far as the car was concerned. The plaintiff had left the car with defendant 1 and if a third party had dealt with defendant 1 regarding the car, without notice of his arrangement with the plaintiff, then that third party would certainly be protected against any claims that could be advanced by the plaintiff. The question whether movables could be hypothecated without transferring possession to the hypothecatee was valid had been considered in - ''Shrish Chandra Roy v. Mungri Bewa'', 9 Cal WN 14 (A) and - ''Misri Lal v. Mozhar Hossain'', 13 Cal 262 (B) and it was held that the hypothecation of movables could be recognised by the Courts. But when these movables are left in the possession of the mortgagor a wide door is opened for fraud, and when the equities between the innocent purchaser and the mortgagee have to be weighed, the preponderance must be given to the purchaser, for the mortgagee has by his omission to secure possession of the goods facilitated the commission of the fraud.
Therefore, it was held in - ''Sreeram Narasiah v. Venkataramiah'', AIR 1919 Mad 779 (1) (C) that a ''bona fide'' purchaser of hypothecated goods without notice of the encumbrance took the goods free of all encumbrances. The mortgage of movable property was also held to be valid in - Chinni Venkatachalam Chetti Vs. Athivarapu Venkatrami Reddi, . Thus Ext. B was a valid document so far as the car was concerned, provided the car remained in the custody of defendant 1, or the transferee, from defendant 1, took the car with notice of the encumbrance. Thus we have to consider in this case whether defendant 2 who had admittedly purchased the car from defendant 1 had notice of the encumbrance. Exhibit B was on 12-4-1122 and defendant 2''s purchase was admittedly afterwards, that is, on 26-7-1122. The plaintiff''s case was that defendant 2 was aware of this encumbrance whereas defendant 2 denied it. Defendant 2 was the driver of the car. Defendant 1 after getting himself heavily involved had to leave the place for Iraq and Ext. C is a letter sent by defendant 1 on 16-3-1947 corresponding to 2-8-1122 from Bombay on his way to Iraq.
It would appear that the plaintiff, defendant 1 and one Mr. Nilacantan, retired Assistant Excise Commissioner had a joint interest in a concern run under the supervision of defendant 1. Defendant 1''s liability arose under this and it was in the presence of Mr. Nilacantan that accounts were settled and Ext. B was executed. Mr. Nilacantan is an attestor to Ext. B and he died before he could be examined in this case. Exhibit C was enclosed in a cover Ext. C(1) addressed to Mr. Nilacantan. The plaintiff stated that this letter was enclosed in that cover and it was handed over to him by Mr. Nilacantan. Defendant 2 when examined as D.W. 1 stated in cross-examination that Ext. C appeared to be in the handwriting of defendant 1. It was stated thus in that letter:
You might have known that I have started to Iraq. I think it is my fate owing to misfortune. I handed over the car to the driver himself. Her will give you the amount of Rs. 2500/- in instalments.
After the letter is concluded there is an addition under "N.B." which showed that the car referred to was the car T.R.V. 4657. We do not find any reason to suspect the genuineness of Ext. C letter and of the reference in it to the driver who is defendant 2. The plaintiff had examined a witness P.W. 2 to show that defendant 2 had taken him to the plaintiff once, apparently for the purpose of settling the transaction. The witness stated that at that time defendant 2 had offered the plaintiff Rs. 2500/-, that defendant 2''s object was to avoid a litigation, and that defendant 2 offered to pay Rs. 1000/- in cash and promised to execute a promissory note for the balance of Rs. 1500/-. He also stated that the offer thus made was on account of the Plymouth car about which he had already referred to in chief examination. He also stated that when defendant 1 left the place he had arranged with defendant 2 to pay the said sum, to the plaintiff by selling the car or otherwise.
The lower Court had lost sight of the evidence given by P.W. 2. The plaintiff had sworn as P.W. 1 that defendant 2 was aware of this transaction and so from this circumstance it has to he presumed that defendant 2 was aware of the transaction between the plaintiff and defendant 1 so far as the hypothecation of the car was concerned. The car had been sold to him by defendant 1 and since defendant 2 had notice of the prior hypothecation he could take the car only subject to the charge on the car. Thus the plaintiff is entitled to get a decree against the car also and we allow the same.
In the result we modify the decree of the lower court and give the plaintiff a decree for the amount allowed by the lower Court against the car scheduled in the plaint. The plaintiff will get the costs of this appeal from defendant 2.