(AIR 1965 SC 1954)

FACTS:

One M/s Harhadas Mohanlal & Co. entrusted six boxes of menthol crystals to be delivered form Thana to Okhla to a railway company vide two railway receipts. The railway receipts for the said consignments were endorsed to Morvi Mercantile Bank against an advance of Rs. 20,000/-.

The said consignments did not reach the stipulated destination and the railway company offered to deliver certain parcels to the bank which were rejected by the latter as they did not match with the goods consigned. Upon this the railway company filed a civil suit for the recovery of Rs. 35,500/- against the value of goods consigned, including damages.

In the trial court while the judge accepted that the railway company had lost the consigned boxes yet he dismissed the suit for the bank as endorsee of railway receipts were not entitled to sue the railway company on the railway receipts (R.R.) for loss of consignments. In the high court the bank got the judgment reversed wherein the court held that Bank as endorsees of the R.R. were entitled to sue for compensation of loss suffered but as pledgees they could sue only with respect a sum of Rs. 20,000/- for the amount advanced by it and not for Rs. 35,500/.

Questions before the Supreme Court

● Whether an endorsement of a railway receipt constituted a pledge?

● Whether the Bank was the pledgee of the goods or it was just the pledgee of the documents of title?

● Whether the Bank as pledgee of goods could sue the railway company for the entire amount of the consignment?

JUDGMENT

In the Supreme Court, the bench by a 3:2 majority held that;

● The Railway Receipts as documents of title could be validly pledged under the Indian Contract Act, 1872.

● Under section 180 of the Contract Act, a pledgee being a bailor of goods had the same remedies as the owner of goods as regards the third persons. Thus the bank was allowed to recover damages for the full value of the consignments.

● Because the railway receipts were endorsed to the Bank for the loan advanced by it, the court held that the Bank would be in control of the goods till the debt was discharged. Thus it was a pledgee towards the entire goods and not towards the documents of title only.

Implications

● The earlier conflicting opinions of various High Courts were finally settled when the Supreme Court held that documents of title could constitute a valid pledge of goods.

● By allowing a valid pledge to be made on a Railway Receipt, the Court held that a pledge could be made in constructive possession i.e. actual delivery of goods was not essential.

● The analogy drawn by court that by endorsement of documents of title against payment of advance constituted a pledge. Thus a valid pledge can even be inferred from the given set of circumstances and thus the requirement of necessary formalities is not an essential condition for the constitution of a valid pledge.  

● The court observed that a pledge being a bailment of goods as security for payment of a debt, the pledgee will have the same remedies as the owner of the goods would have against third persons for deprivation of the said goods or injury to them. Thus the court imported another safeguard for the protection of the pledgee by allowing him right to sue for deprivation or loss to goods.

● The apprehension in the minority view should be positively appreciated as to the fate of the liability of the railways (or any carrier for that matter) unless they are notified of the pledge of the goods and the said transfer of documents of title.

● The Court unduly equated the endorsement of a railway receipt as creating the same rights as under an endorsement of a negotiable instrument sue as right to sue for loss.

● The Court failed to reconcile the interests of two bailees (the bank and railway company in this case) and their respective liabilities to the bailor. The court also did not look into the aspect as to there could be legally two bailments of the same good at the same time and the implications of such a situation.

BY LAWZ BUREAU