1989 PLP 3394 (MLD)

AHMED ALI U.QURESHI, J.--This High Court Appeal is directed against the judgment and decree of -a learned Single Judge of this Court dated 5?8-1984 in Suit No.131 of 1973, whereby the learned Single Judge passed a preliminary mortgage decree for accounts in Form 5-A of Schedule II of C.P.C. against the appellant, declaring that on the date of filing of the suit a sum of Rs.2,14,856.20 was due and payable by the defendant/appellant to the plaintiff. He also awarded simple interest till the satisfaction of the decree to the plaintiff on the above amount at the rate of 8-1/2% per annum. He rejected the counter?claim riled by the defendant /appellant.

2. The facts of the case in brief are, that the deceased/defendant Abdul Hanif was allowed by the Plaintiff cash credit facility to the extent of Rs.50,000 which was subsequently raised to Rs.1,00,000 on 17-6-1963. It was further enhanced to Rs.1,50,000 on 17-4-19CA. All these limits were granted, against the pledge of stock, but throughout the margin was maintained at 40%. The limit of cash credit facility was renewed from time to time on the same terms and conditions, but in all the renewals, the margin was maintained at 40%. However, on 25-8-1970, when the cash credit limit was renewed upto 31-1-1971 vide Exh.6/69, the margin was reduced to 30%. The case of the plaintiff is, that this reduction in the margin was allowed subject to the condition, that advance was to be collaterally secured by the mortgage of the factory premises of defendant, which defendant failed to do. Consequently, on 9-10-1970, the plaintiff wrote to the defendant, that the margin was raised from 30% to 40% on the stock pledged with the bank, but all other terms and conditions would remain unchanged. They also informed the defendant, that as a result of this increase in the margin, their accounts with the plaintiff-bank had become irregular by Rs.23,465.74 and he was asked to pay the same and also to complete necessary formalities in respect of mortgage over the property as per agreement with the bank. The defendant did not agree to this increase of margin and represented to the plaintiff, that this increase in margin was arbitrary and without notice to him, and further that it was creating difficulties for him in operating the account. There ensued lengthy exchange of correspondence between the parties. The plaintiff continued demanding from defendant to clear the irregularity in the account and also to execute the registered mortgage deed. The defendants resisted the demand of the plaintiff and called upon the plaintiff to reverse the entries in their account and also to reduce the margin limit to 30%.

3. The Defendants/Appellants by Memorandum dated 31-12-1978 created equitable mortgage over the aforesaid property by deposit of title deeds. However, the Plaintiffs declined to reduce the margin, but insisted on execution of registered mortgage and insisted upon the Defendant to cleat the accounts. The correspondence continued between the parties, till the Plaintiffs served legal notice upon the defendant and filed the suit for recovery of dues from the defendant.

4. The Defendant resisted the suit on the ground, that the Plaintiffs, without notice to him, arbitrarily increased the margin from 30% to 40% causing obstruction in the operation of accounts by him and ultimately caused damage to the pledged stock and goods. He claimed that as a result of this obstruction by the Plaintiffs and negligence on their part, as they did not take proper care of pledged stocks, he suffered loss and therefore, he prayed for decree in the sum of Rs.64,546 against the plaintiffs. The counter-claim was denied by the Plaintiffs. During the pendency of the suit, the original defendant Abdul Hanif died and his legal representatives were joined as parties, who are the appellants.

5. On the pleadings of the parties the learned Single Judge framed the following consent issues:- (1)??????? Is the plaint not properly signed and verified? If so, to what effect? (2)??????? Was the plaintiff not justified in raising the margin from 30% to 40% without giving any notice or opportunity of hearing to the defendant? If so, to what effect? (3)??????? Was the plaintiff bound to sell the pledged goods and mitigate the losses after the expiry of validity period of cash credit limit on 31-1-1971? If so, to what effect. (4)??????? Is the plaintiff entitled to recover from the defendant interest, penal ??????? interest, godown rent and other charges etc., as claimed by them? (5)??????? Is the Defendant entitled to the counter claim as claimed by him? If so, to what amount? (6)??????? Has the plaintiff any cause of action against the defendant? (7)??????? What should the decree be? ??????????? 6.???????? Our findings and reasons on the above issues are recorded as under:- Issue No.2:

1. We will deal with this issue first, as it is the most contested issue. The parties have produced documentary as well as oral evidence. The parties have produced documents Exhs.6, 6/1 to 6/115 and Exh.7, 7/1 to 7/85. The Plaintiffs have examined their principal Officer P.W. Syed Zinuddin (Exh.8) and one of their Officers Abdullah (Exh.9) and also produced certain documents through this witness. The deceased/defendant had examined himself as Exh.10 and also produced one document after the side of the defendant was closed. The plaintiff did examine Muhammad Shafi as Exh.11.

2. Admittedly the defendant was given cash credit limit by the plaintiff bank since 1963 which was renewed and enhanced from time to time. The learned trial Judge has described in detail the documents produced by the parties, showing the sanction, enhancement and renewals of the cash credit limit to the defendant. Admittedly the final cash credit limit was renewed vide Exh.6/69 dated 25-8-1970 upto 30-1-1971 for Rs.1,50,000 wherein the margin was reduced from 40% to 30%. This cash credit limit was granted against the following security:- (a) ?????? Pledge of the envelopes, paper reams and gum, and (b)??????? Collateral security hypothication of machinery installed in the factory ???? premises at Garden East, Lawrence Road, Karachi.

3. The column against other 'terms and conditions' shows, that the machinery would not be released, unless and until mortgage is created over the factory building to the bank. Under this column there is further endorsement to the following effect. "Please note that the above-mentioned limit has been renewed and enhanced without prejudice to our right to cancel the same either wholly or partially with or without notice to you or to alter all or any of the conditions mentioned above at any time without showing any reason whatsoever therefore."

4. The case of the plaintiff is, that the above cash credit limit was granted with reduced margin on the condition, that the defendant would create mortgage over his factory building in favour of bank. But as creation of mortgage would have taken some time to complete the formalities, therefore, temporarily hypothication of machinery installed in the factory was accepted as collateral security.

5. Admittedly in the cash credit limits granted to the defendant by the plaintiff from 1963 to 1970, the margin was 40%. Admittedly in all the previous cash credit limits the goods were pledged with the bank but the margin was kept at 40% and therefore, there appears to be substance in the contention of the plaintiffs/respondents, that the margin was reduced to 30% on the condition that the mortgage would be created over the factory premises in favour of the Plaintiffs bank. The learned Single Judge has specifically pointed in his judgment to the letter Exh.7/53 dated 10-3-1972 written by the plaintiffs/respondents to the deceased/defendant. Its relevant contents are as follows:- "Yon are aware that your firm's cash credit limit was renewed in February, 1968 for Rs.1,20,000 against pledge of stocks at 40% margin. Our Manager, Local Officer, Karachi, had agreed to enhance the limit to Rs.1,50,000 and also to reduce margin on stock to 30% subject to the advance being collaterally secured by mortgage of the factory. At your request however hypothecation of machinery instead was accepted as an interim measure to help you to meet your immediate requirements. You had desired some time to create mortgage and the request was acceded to. But despite a lapse of about 1-1/2 years or so the mortgage on the factory has not been created by you, so that the facility of reduced margin cannot be allowed/continue flu-then"

6. He has also referred to the letter of defendant in reply to the above letter, which is Exh.7/54 and dated 17-3-1972. The relevant portion of the letter is reproduced as under: - "I agree that at the time of sanction of limit of Rs.1,50,000 with 30% margin against pledge of the goods the hypothecation of the machinery was accepted as collateral security in .place of the mortgage of the factory premises as a considerable time was involved in having the formalities completed whereupon the hypothecation of the machinery was to be released by the Bank. But hardly I had operated the account for a month that the margin was arbitrarily increased to 40% which made the account irregular by several thousands of rupees thus making it impossible for me to run the account and take deliveries of the stocks. Furthermore, the account was not regularised in spite of my signing the agreement of Mortgage on 22-10-1970 and hence the deliveries of the goods were refused. As soon as the formalities in respect of the mortgage of the property were completed the relevant papers were delivered to the bank but the officers of the bank were not prepared to release the hypothecation of the machinery and insisted the mortgage thereof alongwith the factory premises. I was further asked to execute and register a general power of attorney in respect of all my belongings and assets which I could not do in the face of their hostile attitude against me. I refer to letter No. CI: KPI: 44/4187 dated 28-9-1971 in this connection. I had spent a considerable time, labour and money in the completion of the formalities arid delivered the relevant papers to the bank with the hope that it would ensure smooth running of the account."

7. Thus the contention of the plaintiffs/respondents, that the limit was reduced on the condition, that the mortgage would be created by the Defendant over the factory premises in favour of the bank, and that as temporary measure hypothecation of machinery was accepted till mortgage could be created, is admitted even by the defendant himself in the above-mentioned letter.

8. The main contention of the learned counsel for the appellant is, that before raising the margin from 30% to 40%, the appellant was not served with a notice. The learned Single Judge has pointed, that the learned counsel for the appellant was unable to show as to under what provision of law he was entitled to such notice. The relationship between the parties was based upon the contract and there is no provision in the contract for issuance of notice before any variation in the terms of contract. The contract is based on reciprocal promises. The plaintiff/respondent agreed to advance the credit facilities to the appellant/defendant with the margin of 30% on the promise of appellant to mortgage his factory etc. as security for the said advance of credit limit. Correspondence between the parties referred to above leaves no doubt, that appellant had promised to mortgage his factory, but as temporary measure, he was allowed to avail of the credit facilities on the hypothecation of the machinery j to enable him to complete formalities of the mortgage. Admittedly, when the respondent raised the limit from 30% to 40%, the appellant had not fulfilled his promise of mortgaging the factory etc. It is contended, that time was not fixed in the contract and that the appellant was not given reasonable time. The credit facility was from 25-8-1970 to 31-1-1971 viz. for 160 days only. The margin was raised by the respondent after 45 days after the contract came into force. In a contract which was valid only for 160 days, the grant of 45 days to party to fulfil the promise, cannot be considered as not a reasonable time. Even after the margin was raised on 9-10-1970, the respondent did not immediately create mortgage. The relevant document on record which is Exh.6/76 shows that the memorandum of the deposit of title deeds for the purpose of equitable mortgage, was executed on 31-12-1970 viz. only one month before contract expired. Under the circumstances, insistence of the respondent, that the registered mortgage may be created before the margin was reduced could not be considered as unreasonable. The contract itself does not show whether the mortgage to be created was to be equitable or English mortgage. The subsequent correspondence between the parties shows, that it was to be registered mortgage. Under the circumstances insistence of the Plaintiff/Respondent for creation of registered mortgage cannot be considered to be illegal or in violation of any term of contract.

9. In para 6(3) supra we have already reproduced the endorsement under the column 'Other terms and conditions', which authorised the respondent, to cancel the limit either wholly or partially with or without notice or vary any of the conditions without showing any reason. It is submitted by the learned counsel for the appellant, that the respondent could have partially or wholly cancelled the limit without notice under this condition of the contract, but could not alter any condition without notice. Reliance is placed on P L D 1965 Dacca 359, wherein it is held "Word 'or' can be interpreted to mean 'and' in order to give effect to real intention of Legislature." This rule pertains to interpretation of the statutes, but the principle enunciated therein, is that word 'or' should be interpreted to give effect to and real intention of the legislature, which in this case would be the intention of the parties. It may be pointed, that intention of the parties could be gathered from the aforesaid reciprocal promises. It cannot be accepted that intention of parties was that notice was not necessary when the limit was cancelled wholly or partially, but it was necessary when any condition was altered even when the Defendant had failed to perform his part of the contract. This condition read as a whole shows that intention of parties was that even in case of any alteration of any condition, neither notice was necessary nor it was necessary for the Plaintiff/Respondent to show any reason for such alteration. We, therefore, find no reason to disagree with the finding of the learned Single Judge on this issue. Issue No.3

1. The case of the appellant is, that the goods were of perishable nature and as such the Plaintiff/Respondent as pawnee/pledgee was duty bound to sell the goods after the expiry of the period of credit limit. The learned Single Judge has pointed to the various correspondence between the parties and nowhere the appellant had informed or indicated to the Plaintiff/Respondent, that the goods were perishable. He has rather admitted, that he had been pledging these goods off and on since 1965 for renewal of the credit limit from time to time.

2. Admittedly at one stage the respondent had asked the appellant to clear the dues otherwise they would sell the pledged goods to which the appellant took strong objection and prohibited the Plaintiff/Respondent from selling the said goods. Even otherwise under Section 176 of the Contract Act the pawnee has got I the option that in case the pawnor makes default in payment of the debt, either to bring a suit against the pawnor upon the debt or promise, and retain the goods I1 pledged as a collateral security, or he may sell the goods pledged on giving the pawnor reasonable notice of the sale. Apparently in the instant case the Plaintiff/Respondent chose to bring the suit while retaining the pledged goods as collateral security. Admittedly the Plaintiff/Respondent did not sell the goods before the institution of the suit, but it was only after the institution of the suit in the Court, that at the request of the appellant the Court ordered the sale of the pledged goods through Nazir of the Court.

3. The correspondence produced in the suit which has been discussed in detail by the learned Single Judge, clearly shows that from time to time the Plaintiff/Respondent offered the appellant to take back the pledged goods on clearing the dues, but he insisted on reversing the entries and reducing the margin. In his cross-examination the deceased appellant has admitted "it is correct that I would have withdrawn the goods pledged by paying 60% of the value of the goods if the margin was 40% and 70% of the value of the goods if the margin was 30%. It is correct that the bank had asked me to take the delivery of the goods pledged even by paying 60% of the value of the pledged goods."

4. It is clear that the Plaintiff/Respondent had been offering the appellant to lift the goods and in fact virtually they had agreed to release the goods when they, asked the defendant to pay 60% of the value' of the pledged goods. Reference may be made to a letter Exh.6/101 which is dated 10-3-1972 addressed to the appellant. The relevant portion of the letter is reproduced as under:- "Merely because your account became irregular due to 40% margin originally charged instead of 30% latter asked for by you, operations on your account were at no stage stopped and no restrictions were placed on allowing deliveries of stock. The undersigned had personally advised you five months hence to take delivery of stocks on payment of 60% value instead of 70% which you were required to pay on advance at 30% margin. Unfortunately you did not take advantage of this concession and freezing of the account as you call it or non-delivery of stocks have been self-imposed by you."

5. All this evidence clearly shows the bona fides of the Plaintiff/Respondent and obstinacy of the deceased Defendant. Consequently the Respondent was well within rights in filing the suit on the basis of debt/promise while retaining the pledged goods as collateral security. We are in agreement with the finding of the learned Single Judge on this issue also. Issue No. 4: The learned Single Judge has already disallowed the penal interest and has allowed interest @ 8-1/2% which was minimum interest under the contract and that also as simple interest. With respect to the godown rent, the pledged 1 goods were lying in the godown, because as pointed above, they were not lifted by the appellant in spite of repeated offers by the Plaintiff/Respondent and as such the Plaintiff were entitled to recover godown charges and incidental expenses. Therefore, we affirm the finding of the learned Single Judge on this issue also. Issue No.5: We have already discussed and pointe6 above, that the deceased Defendant, though he had beers pledging goods with the Plaintiff/Respondent since 1965, but at no time pointed to them that the goods were perishable nor did he lift the goods in spite of offer by the Plaintiff/Respondent. We have also held that under Section 176 of the Contract Act the respondents were well within their rights to file the suit on the basis of debt/promise instead of selling the goods and as such the appellants were not entitled to recover any loss that they may have suffered because of the deterioration of the pledged goods by the time they were sold at the instance of the appellant under orders of the Court. Under Section 161 of the Contract Act "if by the default of the bailee, the goods are not returned, delivered or tendered, at the proper time, he is responsible to the bailor for any loss destruction or deterioration of the goods from that time." As pointed above the bailor viz. the Defendant at no time asked for the return of pledged goods. but rather refused to lift the same when he was so offered time and again by the Plaintiff/Respondent. Admittedly he did prohibit the Plaintiff from selling the pledged goods. Reliance is placed on P L D 1962 B J

20. In this case it has been held that "section 161 is attracted only if bailor calls upon bailee for return, F delivery or tender of goods at specified time volunteering to discharge liability and bailee fails to comply with directive". In absence of any such demand from the Defendant or any offer by him to discharge his liability, the Plaintiff cannot be held responsible for the loss caused to the pledged goods. As pointed by the learned Single Judge the Defendant had not explained as to how he calculated his counter-claim to be Rs.6~

546. According to the defendant, the value of the pledged goods was Rs.2,1 ,779 whereas it was sold by the Nazir for Rs.19,500 only. Thus the loss, if any, was more than what was claimed by the Defendant in the counter-claim. The deceased Defendant had, however, stated that he was claiming the godown rent from 1-3-1973 at the rate of Rs.500 p.m. The learned Single Judge has rightly pointed that the counter claim of the Defendant is based on the ground that the pledged goods which were stored with the Plaintiff, were deteriorated as a result of the negligence on the part of the Plaintiff. The learned Single Judge has also pointed that since the burden of such proof was upon the deceased Defendant, who failed to discharge the burden. We hold therefore, that he has rightly rejected the counter-claim of the Defendant, as neither there was any evidence of negligence on the part of the Plaintiff, nor was there any demand made by the appellant for the return of the pledged goods under Section 161 of the Contract Act. Issues Nos. 1. 6 and 7:

1. Issue No.1 has not been pressed by the learned counsel for the appellant, The creation of equitable mortgage is not denied. As pointed above Exh.6/76, which is 'memorandum of the deposit of title deeds' clearly shows that equitable mortgage was created by the Defendant in respect of the Factory. The mere fact, that in spite of creation of this equitable mortgage, the Plaintiff/Respondent were insisting upon execution of registered mortgage before the margin was reduced, would not nullify equitable mortgage which was created by the Defendant, for the consideration of receiving credit facility in the sum of Rs.1,50,000 as pointed above. For the aforesaid reasons, we find no merit in this appeal which is accordingly dismissed, but under the circumstances, the parties are directed to bear their own costs. M-A.K./M-793/K Appeal dismissed.