The Morvi Mercantile Bank Ltd. and Anr. v. Union of India

The Morvi Mercantile Bank Ltd. and Anr. v. Union of India

1965 AIR 1954

FACTS:

A firm doing business in Bombay entrusted goods worth Rs.35500 with the Railway for delivery in Delhi. The goods were consigned to “self” and the firm endorsed the railway receipts to a Bank against an advance of Rs. 20,000 made by the Bank to the firm. The firm also executed a promissory note in favour of the Bank for that amount. When the goods reached the destination, the Bank refused to take delivery, on the ground that they were not the goods consigned by the firm. The Bank, thereafter filed a suit for the recovery of the value of the goods against the Railway.

ISSUE:

Can an owner of goods make a valid pledge of them by transferring the railway receipt representing the said goods? What value such a document carry for this purpose?

HELD:

Trial Court: Dismissed the suit of bank.

High Court: Allowed the appeal and decreed the claim for Rs. 20,000 on the ground that as pledgee of the goods, the Bank suffered loss only to the extent of the loss of its security.

  • Both the Bank[1] and the Railway appealed to SC.

SUPREME COURT

Contention (Railway): The endorsement of the railway receipt in favour of the Bank did not constitute a pledge of the goods covered by the receipt and the Bank had no right to sue for compensation.

Held

Subba Rao[2], Raghubar Dayal and Bachawat, J J

  1. An owner of goods can make a valid pledge of them by transferring the railway receipt representing the said goods.[3]The firm by endorsing the railway receipts in favour of the Bank, for consideration, pledged the goods covered by the said receipts, to the Bank, and the Bank being the pledgee could maintain the suit for the recovery of the full value of consignment amounting to Rs. 35,500.
  2. A pledge being a bailment of goods under s. 172 of the Contract Act the pledgee, as a bailee will have the same remedies as the owner of the goods would have against a third person for deprivation of the said goods or injury to them under s. 180 of the Act.

Mudholkar & Ramaswami JJ. (Dissenting)

  1. There was no valid pledge of the consignments of goods represented by the railway receipt in favour of the Bank and the Bank was not entitled to sue the Railway for compensation for the loss of goods, relying upon the endorsements of the railway receipts in its favour.
  2. After the passing of the Indian Contract (Amendment) Act, 1930, the legal position with regard to the pledge of railway receipts, is exactly the same in Indian Law as it is in English Law, and consequently, the owner of the goods cannot pledge the goods represented by a railway receipt, by endorsing the railway receipt, unless the railway Authorities were notified of the transfer, and they agreed to hold the goods as bailee of the pledgee. Under the amended law a valid pledge can no longer be made by every person “in possession” of goods. It can only be made by a mercantile agent as provided in s. 178 of the Contract Act (after amendment) or by a person who has obtained possession of goods under a contract voidable under s. 19[4] or s. 19A of the Contract Act, as provided by s. 178 of the Act or by a seller or buyer in possession of goods, after sale as provided in s. 30[5] of the Indian Sale of Goods Act.
  3. Negotiability of such receipt is a creature of a statute or mercantile usage, not of Judicial decisions apart from either. So, in the absence of any usage of trade or any statutory provision to that effect, a railway receipt cannot be accorded the benefits which flow from negotiability under the Negotiable Instruments Act, so as to entitle the endorsee, as the holder for the time being of the document of title, to sue the carrier-the railway authority-in his own name. In view of cl. (3) of the notice printed at the back of the receipt that an endorsement made on the face of the receipt by the consignee was only meant to indicate the person to whom the consignee wished delivery of goods to be made if he himself did not attend to take delivery, the Bank had no right to sue the Railway.

Since the language of s. 178[6]of the Contract Act is clear and explicit, if any hardship and inconvenience is felt because of, such practice of treating the receipt as a symbol of goods as not recognized, it is for Parliament to take appropriate steps to amend the law and it is not for courts to legislate under the guise of interpretation.


[1] Wanted fullrecovery of Rs.35500

[2] Main Judge

[3] On a reasonable construction of s. 178 of the Contract Act, 1872, ss. 4 and 137 of the Transfer of Property Act, 1882, and ss. 30 and 53 of the Indian Sale of Goods Act, 1930.

[4] When consent to an agreement is caused by coercion {The words “undue influence” were rep.by Act 6 of 1899, s 3} fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

[5] Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.  (2) Where a person, having bought or agreed to buy goods, obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist.

[6] Where a mercantile agent is, with the consent of the owner, in possession of goods or the document of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.

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