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TOPIC: MORVI MERCHANTILE V/S UNION OF INDIA

TEAM 1 ASSIGNMENT

SUBMITED BY:
NAME: SANDEEP KUMAR HARTHY HA
SRN NO: 03FL23BLL093
PROGRAMME: LL.B
COURSE: CONTRACT - II
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PETITIONER:

THE MORVI MERCANTILE BANK LTD. AND ANR.

Vs.

RESPONDENT:

UNION OF INDIA, THROUGH THE GENERAL MANAGER, CENTRAL RAILWAY,

DATE OF JUDGMENT:

03/03/1965

BENCH:

SUBBARAO, K.(MAIN JUDGE)

BENCH:

SUBBARAO, K.

DAYAL, RAGHUBAR

MUDHOLKAR, J.R.

BACHAWAT, R.S.

RAMASWAMI, V.

CITATION:

1965 AIR 1954 1965 SCR (3) 254

CITATION INFO :

RF 1978 SC 389 (9)

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CONTENTS:

Introduction…........................................................................................................ 04

Aims & Objectives................................................................................................. 06

ResearchMethodology…........................................................................................ 06

Facts of the case..................................................................................................... 07

Issues...................................................................................................................... 08

Judgement.............................................................................................................. 09

Ratio decidendi…………………………………………………………………….......................................... 12

Analysis.................................................................................................................. 13

Conclusion...............................................................................................................14

Bibliography & References.....................................................................................15

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INTRODUCTION:

The introduction to the case of Morvi Mercantile Bank Ltd. vs. Union of India dives into the
legal debate surrounding whether railway receipts can be considered "goods" under the
Indian Contract Act (specifically Section 178).

Here's a breakdown of the key points:

 Central Question: Can railway receipts be treated as the actual goods they represent,
as defined in Section 178 of the Indian Contract Act (1872)?

 Historical Context:
o Originally, Section 178 had a limited definition of "goods."
o Interpretations of case law broadened this definition over time.

 Mercantile Agents and Pledges:

o If a mercantile agent (someone authorized to sell goods) possesses documents
of title and pledges them, the pledgee (receiver) can get a good title if acting in
good faith.
o The definition of "documents of title" now includes railway receipts.

 Railway Receipts as Documents of Title:

o Before 1930, railway receipts weren't explicitly included as documents of title.
o The Privy Council recognized them as symbols of possession for the goods
they represent.
o The Sales of Goods Act (1930) solidified their inclusion.

 Pledge Definition:
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o A pledge is a temporary transfer of possession of personal property as security

for a debt.
o The Indian Contract Act (Section 172) defines a pledge in this context.

The introduction sets the stage for the case by highlighting the importance of "delivery of
possession" for a valid pledge and explores how documents of title, like railway receipts,
might factor into this concept. It also foreshadows the legal debate around whether a
document can represent the actual goods for pledge purposes.
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AIMS & OBJECTIVES:

To analyse the judgement of the case, Morvi Mercantile Bank Ltd. V. Union of India. To
further research about various provisions related to the case in the Indian Contract Act,1872,
Sales of Goods Act, 1930 and Transfer of Property Act, 1882.

RESEARCH METHODOLOGY:

To start the project, research in right way was most important. All the data and contents
collected depended upon correct way of research. The method of research was doctrinal
method. These data and contents depend upon the original case and other sources, and to find
these sources hard-work and dedication was applied. Right and apt information and data were
picked from various books and other sources and then analysed and interpreted in my own
view. Various sources had been referred to gather useful information and knowledge. Articles
and opinions of some renowned researcher were used to interpret review of literature and
conclusion of the project work. The compilation of data collected was done chronologically
which was equally important to have meaningful content. Every point information was
organised in correct sequence and then written in my own words. Then the sources which
were referred to have been listed that followed bibliography and blogs.
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FACTS:

A firm doing business in Bombay entrusted six boxes of goods worth Rs.35500 with the
Railway for delivery in Delhi. The goods were consigned to “self” and the firm endorsed the
railway receipts of four boxes 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.

Parties Involved:

 M/s. Harshadrai Mohanlal & Co. (firm) - Shipped goods

 Morvi Mercantile Bank (Bank) - Provided loan
 Union of India (UOI) - Represented the Railways (defendant)

The Shipment:

 The firm entrusted six boxes (allegedly containing menthol crystals) to the Railways
for delivery.
 Each box had a railway receipt ("self-consigned").

The Loan:

 The Bank provided a loan of Rs. 20,000 to the firm.

 As security, the firm endorsed the railway receipts in favor of the Bank.

The Dispute:

 The goods never arrived at their destination.

 The Railways offered to deliver some parcels, but the Bank refused, claiming they
weren't the original goods.

This sets the stage for the legal battle. The Bank, believing they had a valid pledge on the
goods through the endorsed receipts, sued the Railways for the lost shipment's value (Rs.
35,500). The Railways, on the other hand, denied responsibility and claimed they offered
delivery, which the Bank refused.
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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 carries for this purpose?

Legal Issue:

 Did endorsing the railway receipt constitute a valid pledge of the goods by the firm?
 Could the Bank sue the Railways for the loss of the goods based on the endorsed
receipt?

The main legal issue in the Morvi Mercantile Bank vs. UOI case revolved around the concept
of a pledge and the proper way to create one using a railway receipt. Here's a breakdown of
the specific issues:

 Validity of Pledge: The central question was whether simply endorsing the railway
receipt in favour of the Bank constituted a legally binding pledge of the goods
represented by the receipt.
 Bank's Rights: Did the Bank, as the supposed pledgee (holder of the pledged item),
have the legal right to sue the Railways (the pledgor - the party offering the pledge)
for the lost goods based solely on the endorsement?
 Scope of Pledge: Even if there was a pledge, the issue might have been whether the
endorsement granted the Bank rights to the goods themselves or just the right to hold
the document (railway receipt) until the loan was repaid.
ACT:

Indian Contract Act 1872, S.178,

Transfer of Property Act 1882. ss. 4 and 137 and

Indian Sale of Goods Act 1930, ss. 30 and 53

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TRIAL COURT JUDGMENT:

 The court found the firm shipped menthol crystals.

 The Railways lost the goods due to negligence.
 The offered parcels contained caustic soda, not menthol crystals.
 The endorsement of receipts was valid.
 However, the court ruled that the Bank couldn't sue the Railways based solely on the
endorsed receipts.
 This dismissed the Bank's claim for the full value.

Appeal to High Court:

 The High Court agreed with the trial court on points 1, 2, and 3 (menthol crystals, lost
goods, valid endorsement).
 But they disagreed on point 4. They believed the Bank, as a pledgee (holding the
endorsed receipts as security), could sue for the loan amount (Rs. 20,000) they lost
due to the missing goods.
 The High Court awarded the Bank Rs. 20,000 with interest and partial court costs.

Further Appeals:

 Both the Bank (wanting full value) and the Railways (wanting no compensation)
appealed to the Supreme Court
SUPREME COURT Held

Subba Rao1, 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.2 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
1
Main Judge
2
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.
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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 3 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. 304 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
3
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.
4
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.
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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. 1785of 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.

RATIO DECIDENDI 3:2

Majority
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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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- reasoning including reasoning of each judge (Ratio Decidendi) reason for decision
An owner of goods can make a valid pledge of them by transferring the railway receipt
representing the said goods. 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.
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.

Minority
Reasoning including reasoning of each judge (Ratio Decidendi)
After the passing of the Indian Contract (Amendment) Act, 1930, the legal position
with regard to the pledge of railway receipts is that the owner of the goods cannot, pledge the
goods represented by the railway receipts in the present case unless the railway authorities are
notified of the transfer and they agree to hold the goods as bailee for the pledgee. Therefore,
there is no
valid pledge of consignments of goods between the Bank and the firm and Bankcannot sue
the railways for the loss of goods.

ANALYSIS:
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 Validity of Pledge: Did the mere endorsement of the railway receipts establish a
valid pledge under Indian law? Did it grant the Bank sufficient ownership rights to
sue for the full value?
 Bank's Rights and Losses: Even if there wasn't a full pledge, did the Bank have any
rights or remedies due to the endorsement?

Possible Considerations:

 Specific requirements for a valid pledge under the Indian Contract Act or Transfer of
Property Act.
 Whether the endorsement transferred rights to the goods themselves or just the right
to hold the receipts until loan repayment.
 Potential alternative claims the Bank might have had beyond a full pledge, such as
breach of contract by the Railways.

Outcome Prediction (uncertain):

 The Supreme Court might have sided with the trial court, requiring a more formal
pledge process for the Bank to claim the full value.
 Alternatively, the Court might have offered the Bank a limited recovery based on their
specific rights under the endorsement, potentially less than Rs. 20,000.

Real-World Impact:

 This case clarifies the legal requirements for creating a valid pledge using railway
receipts.
 It highlights the importance of proper documentation and procedures when securing
loans with goods as collateral.

CONCLUSION:
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The Morvi Mercantile case, also known as Morvi Industries Ltd. v. Union of India, was a
landmark judgment by the Supreme Court of India in 1971. The case revolved around the
interpretation of the doctrine of promissory estoppel in the context of governmental
representations. In its conclusion, the Supreme Court upheld the doctrine of promissory
estoppel, emphasizing the importance of fairness and justice in contractual relations between
the government and private parties. The Court held that the government could be estopped
from going back on its promise if such action would result in injustice or hardship to the
party who relied on the promise to their detriment. The judgment highlighted the principle
that the government, like any other party, should be held accountable for its promises and
representations, thereby promoting trust and confidence in administrative dealings. It
established a precedent for enforcing the doctrine of promissory estoppel against the
government, providing a measure of protection to individuals and entities who rely on
governmental assurances. Overall, the Morvi Mercantile case stands as a significant legal
precedent in Indian jurisprudence, affirming the principles of fairness, equity, and good faith
in governmental actions and contractual relations.

BIBLIOGRAPHY:
Avatar Singh, Contract and Specific Relief
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Mulla, Indian Contract Act

REFERENCES:
www.casemine.com
www.scconline.com
www.manupatra.com
www.indiankanoon.com