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Pledge Case PDF
Pledge Case PDF
Judgment Sheet
(2). Whether the statement of account annexed with the plaint has
not been prepared in accordance with the law? OPD
(3). Whether the plaintiff has violated the terms and conditions
mentioned in the sanction advices? OPD
10. The bailment is defined under Section 148 of the Contract Act,
which is read as under;
“148. “Bailment’, “bailor” and “bailee” defined.—A “bailment” is
the delivery of goods by one person to another for some purpose,
upon a contract that they shall, when the purpose is accomplished,
be returned or otherwise disposed of according to the directions of
the person delivering them, the person delivering the goods is called
the “bailor”. The person to whom they are delivered is called
“bailee”.
12. The above said provision of law shows that pledge is a bailment
of goods as security for repayment of debt or the performance of a
promise.
13. As per law the bailment is the delivery of goods by one person
to another for a purpose as per the contract that, when the purpose is
accomplished shall be returned or otherwise disposed of according to
the directions of the person delivering them.
15. Under Section 160 of the Contract Act, the pawner is bound to
return the pledge goods to the pawnee on repayment of debt or
performance of the purpose, but where the pawnee failed to repay the
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debt the pawner is within his rights to sell the pledge goods after
reasonable notice to the pawner or retain the goods and file the suit for
recovery of debt as provided under section 176 of the Contract Act,
but the question arose where the pawner is not in a position to return
the pledge goods whether the pawner’s right to sue and recover the
debt without returning the pledge goods remain alive or not ?
16. An identical issue came up before a Full Bench of this Court
reported as A. M. Burq and another v. Central Exchange Bank Ltd
and others (PLD 1966 (W.P.) Lahore 1), and the Bench held as
under;
“It is, therefore, clear that the right to proceed against the property
is not merely accessory to the right to proceed against the debtor
personally. Thus, a pledger cannot compel the pledgee to exercise
the, power of sale or its adjustment as a means of discharging or
satisfying the amount due to him. The pledger therefore is competent
in law to sue for his debt without selling the pledged property and
adjusting its price towards the payment of the debt. He has,
however, to keep the property pledged intact so that he may be able
to hand over the security to the pledge on payment of the debt by
him" .............. The principle in equity is that the creditor is not
entitled to recover the amount of his secured debt when he cannot
return the security.”
21. This issue also came up before the Hon’ble Supreme Court of
India in a case reported as Lallan Prasad vs Rahmat Ali & others
(AIR 1967 SC 1322);
“17. There is no difference between the common law of England)
and the law with regard to pledge as codified in sections 172 to 176
of the Contract Act. Under section 172 a pledge is a bailment of' the
goods as security for payment of a debt or performance of a,
promise. Section 173 entitles a pawnee to retain the goods pledged
as security for payment of a debt and under section 175 he is entitled
to receive from the pawner any extraordinary expenses he incurs for
the preservation of the goods pledged with him. Section 176, deals
with the rights of a pawnee and provides that in case of default by
the pawner the pawnee has (1) the right to sue upon the debt and to
retain the goods as collateral security and (2) to sell the goods after
reasonable notice of the intended sale to the pawner. Once the
pawnee by virtue of his right under section 176 sells the goods the
right of the pawner to redeem them is of course extinguished. But as
aforesaid the pawnee is bound to apply the sale proceeds towards,
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satisfaction of the debt and pay the surplus, if any, to the pawner. 'So
long, however, as the sale does not take place the pawner is entitled
to redeem the goods on payment of the debt. It follows therefore that
where a pawnee files a suit for recovery of debt, though he is entitled
to retain the goods he is bound to return them on payment of the
debt. The right to sue on the debt assumes that he is in a position to
redeliver the goods on payment of the debt and therefore if he has
put himself in a position where he is not able to redeliver the goods
he cannot obtain a decree. If it were otherwise, the result would be
that he would recover the debt and also retain the goods pledged
and the pawner in such a case would be placed in a position where
he incurs a greater liability than he bargained for under the contract
of pledge. The pawnee therefore can sue on the debt retaining the
pledged goods as collateral security. If the debt is ordered to be paid
he has to return the goods or if the goods are sold with or without
the assistance of the court appropriate the sale proceeds towards the
debt. But if he sues on the debt denying the pledge, and it is found
that he was given possession of the goods pledged and had retained
the same, the pawner has the right to redeem the goods so pledged
by payment of the debt. If the pawnee is not in a position to redeliver
the goods he cannot have both the payment of the debt and also the
goods. Where the value of the pledged property is less than the debt
and in a suit for recovery of debt by the pledgee, the pledgee denies
the pledge or is otherwise not in a position to return the pledged
goods he has to give credit for the value of the goods and would be
entitled then to recover only the balance. That being the position the
appellant would not be entitled to a decree against the said
promissory note and also retain the said goods found to have been
delivered to him and therefore in his custody.” (underline is ours)
24. Thus the law applicable and the judgments of our Superior
Courts and the Indian Supreme Court establishes that it is a settled
principle of law that where the pawnee sues for recovery of debt
allowed against the security of pawned goods, the creditor is required
to keep the pawned goods intact for returning the same to pawner
subject to natural wear and tear, who retain the right to redeem the
pledge goods unless sold after reasonable notice, as per law the
creditor can maintain its suit subject to adjustment of the sale
proceeds of the goods.
25. The second question is if the pawned goods are lost, damaged
or otherwise not available for delivery to the pawner, in equity, the
pledgee cannot seek recovery of the debt secured against the security
of pawned goods whether the pawner is entitled to an equitable set off
by way of adjustment of the value of the lost or damaged pawned
goods?
152. Bailee when not liable for loss etc., of thing bailed. The bailee,
in the absence of any special contract is not responsible for the loss,
destruction or deterioration of the thing bailed if he has taken the
amount of care of it described in section 151.”
27. The bare reading of Section 152 of the Contract Act shows that
the pawnee has to take care of the pawned goods as a man of
ordinary prudence, which would he takes under the similar
circumstances of his own goods in all respect as to quality, quantity
and value in the absence of any special contract in this behalf. In the
presence of any special contract, it has to be seen whether the said
contract is in violation of basic rights of the parties under the law. In
an eventuality that pawned goods have been lost or damaged and the
pawnee has taken care of the pawned goods as a man of ordinary
prudence which he is obliged to take care of his own property and has
not violated any obligation under a contract if any, in that case subject
to proof in court the liability for such loss may not be the pawnee’s
liability and the pawner has to bear the said loss and the pawnee is
entitled to recover its debt.
28. The Sindh High Court while dealing the similar issue has held
in Prudential Commercial Bank Ltd. v. Hydari Ghee Industries Ltd. &
others (1999 MLD 1694) as follows;
“The seal put by the Customs Authorities, likewise, can always be
removed upon payment of the customs dues. The underlying fact
however remains that the pledged goods are available and can be
returned unless proved otherwise. I must record here that except for
oral assertion, nothing is shown to presume pilferage of loss of the
subject palm oil. Thing brings me to the issue if the plaintiff is to be
called upon in the circumstances of the case to prove that it had
acted diligently and had taken as much care of the goods entrusted
to it as a man of ordinary prudence would take of his own goods of
similar quality and value.”
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30. It is settled principle of law that where the pawnee claims the
loss or damage to the pawned goods it is the duty of the pawnee to
establish that he has fulfilled his obligations both statutory and
contractual otherwise he will not be entitled to get the benefit of
Section 152 of the Contract Act.
31. Now it has to be seen whether the appellant Bank has claimed
the benefit of Section 152 of the Contract Act or not? The contents of
plaint shows that the plaintiff filed a suit on 5 th of July 2004 whereas
the goods were found short on 2.4.2004 meaning thereby it was in the
knowledge of appellants that goods have been stolen or have been
replaced with Husk and Tota Rice but the appellants have not asserted
or disclosed these facts in their plaint. It is the respondent who
disclosed this fact that the appellants are not in a position to return
pledge stocks as they have removed and replaced the same. In reply
to application for permission to defend the suit, the appellants came
with the version that the respondents have delivered the pledge stocks
to respondents for selling the same in market and to deposit the sale
proceed towards the adjustment of liability. The pledge stocks was
handed over to respondents on their assurance that “the money received
from the sale will be utilized for the clearance of outstanding dues. This
money was not deposited, as promised, hence misappropriated by the
defendants.” It was further asserted that “on inspection it has emerged
that the defendants apart from lifting 3950 bags of Rice instead of 1175
deceitfully managed to store 1095 bags of Husk instead of Rice in the
godown and the appellant is contemplating initiation of criminal action
against the defendants. The respondents have acknowledged shortage of
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32. Learned counsel for appellants has argued with vehemence that
Ex.D-34 shows that on 2.4.2004 the respondents have admitted the
theft and replacement of stocks. Ex.D-34 is stock report which is
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thereof at least one week before the same shall become due or
payable and shall handover to you the polity or policies of insurance
and receipts for premia paid in respect thereof to you. I /We agree
not to raise at any time any dispute as to the amount of your
insurable interest. If default be made in payment of such premia or
in keeping the Pledge Goods so insured, then and in such case it
shall be lawful but not obligatory upon you to pay such premia and
to keep the same so insured and expenses incurred by you for the
purpose together with an addition of 20% thereto as liquidated
damages shall be charged to and paid by me/us, as if the same were
part of the amount due to you.”
35. The bare reading of the above said clause shows that the above
exemption is subject to section 152 of the Contract Act which
provides as under “If has taken the amount of care of it described in
Section 151”. Section 151 Provides that “the bailee is bound to take as
much care of the goods bailed to him as a man of ordinary prudence would,
under similar circumstances, take of his own goods of the same bulk,
quality and value as goods bailed.”
It was his duty as bailee to prove that his breach of duty did
not cause the loss, not the plaintiff’s duty to show that it did. This
appears to be merely an application of the principle Omnia
praesumuntur contra spoliatorem, under which a man who, having
converted property, refuses to produce it that its exact value may be
known, is liable for the greatest value that such an article could have
: Armory v. Delamirie (1) ; Hammersmith Ry. Co. v. Branc. (2) this
decision appears to me exactly to cover this case, and to show that
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the county court judge in his accurate and careful judgment took the
right view of the legal position. ”
38. The exemption claimed thus is subject to proof that bailee was
not negligent. In the present case the case of the appellant is not that
they have taken care of the goods as a man of ordinary prudent, but
the appellants in plaint have not claimed any shortage or theft of
pledge goods and in replication of application for permission to
defend the suit, they come with exemption clause of pledge letter but
have not produce any evidence in support of their claim.
39. The bailee is not an insurer of the goods, the bailee is not
responsible for loss caused by an accident but he has to show when
goods bailed are lost that there were no negligence or default on his
part, it is thus the duty of the bailee to take step to recover the goods
and if he can inform the owner, in time he must do so, and if he has
failed to inform the owner, he must act as an agent of necessity and
takes the steps which are reasonable owner would take in defence of
the property of value in question. A bailee is bound to take reasonable
mean to protect his bailor’s property and in case of loss, the onus is on
the bailee to prove that it occurred due to his negligence or want of
ordinary care.
41. The learned trial court has thoroughly discussed the evidence
produced by the parties and has rightly passed the decree. The upshot
of the above said discussion is, this appeal fails and is dismissed.
Judge Judge