1980 PLP 1170 (CLC)

(10) What shall the decree be ?

7. The learned counsel for the parties did not raise any dispute as to these issues. It was agreed that there is no dispute that 993 bags were cleared by the clearing agent and 390 bags were delivered to defendants l to

3. Findings to these issues are recorded accordingly.

8. It will be convenient to deal with the questions raised in these two issues together. The first question that requires consideration is whether defendant No. 4 were the agents of the plaintiff or the defendants. It is the case of the bank that the contesting defendants addressed to them letter dated 30th May, 1967 (Exh. 6/1) requesting the bank to hand over the documents relating to the goods in question to defendant No. 4, contents of which are in the following terms :

" We shall be obliged if you will kindly send the documents relating to the above Letters of Credit to M/s. Mahmud Corporation, Karachi, for clearance of the goods as the steamer is arriving on 31st instant. Kindly also pay the customs duty, sales tax, etc. We shall take the delivery of the goods on clearance against payment of all your dues." It was pointed out on behalf of the bank that it has come in the evidence through the bank's witness Noor Ahmed that the bank does not do the business of clearing and forwarding and for this purpose an agent is to be appointed. Accordingly it was submitted that tile defendants had requested the bank for appointing a clearing agent for the purpose of obtaining the clearance of the goods through the aforesaid letter in which further facilities regarding payment of customs duly etc. were requested for. On the other hand, on behalf of the defendants it was pointed out that P. W. Noor Ahmed admitted in the cross-examination that the docu ments were handed over to defendant No. 4 by the bank prior to 19th May, 1967. P. W. Mohd. Afzai also admitted that approved list of clearing agents is maintained by the bank and that out of the three Letters of Credit for documents of one were given to P. P. C. C. (another forwarding and clearing agent) and the remaining two to Mahmud Corporation by the bank. He further admitted that the documents were given to Mahmud Corporation after consultation with the defendants on phone and the letter (Exh. 6/1) was written after about 11 days. He further stated that when the clearing agents apply to the bank for being brought on the approved list a bond is taken from them by the bank. The version of defendant Abdul Hanif was that no object-on was taken to the routine letter given to the bank after they had already passed on the documents to defendant No. 4 for clearing the goods. He, however, admitted that the P. P. C. C. were appointed as clearing agents at his instance by the bank vide letter dated 23rd August 1967 (Exh. 8/18). The last-mentioned letter is substantially in the same terms as letter Exh. 6/1. The defendant also admitted that he would have paid godown charges for the period during which his goods were stored in the godowns.

9. Now there can be no doubt that in relation to the clearance of goods and their storage the bank was acting as the agent of the defendants but the question that requires consideration is whether the defendant No. 4 was the agent of the bank or of the defendants. Each side in the first instance disclaimed the relationship of principal and agent as between themselves and defendant No. 4 and claimed that the latter were the agents of the other party and, therefore, the negligence on the part of the clearing and forwarding agents was not the responsibility of the party. The precise question was raised in Syed & Company v. M. Ispahani Ltd. (1). It was held that for the purpose of clearing the goods the clearing agent was formally appointed by the bank according to the instructions and for the benefit of the consignee and that, as such, the clearing agent occupied the position of an agent of the consignee and not of the bank. It was further held that there was privacy of contract between the consignee and the clearing agent who by reason of an appointment through the bank occupied the position of a substituted agent. It. was also held that according to sections 194 and 195 Contract Act the act of appointing the clearing agent for the purpose of clearing the goods was within the competence of the bank and that the former had knowledge of the fact that the latter acted in this behalf for its principal for the time being, namely, the consignee. The reason for holding this was that the obligation, if any, on the part of the bank in connection with the work of clearing the goods ceased as soon as privacy of contract was created between the consignee and the clearing agent. The facts of the present case are somewhat similar to the facts o the reported case. The evidence on record clearly establishes that defendant No. 4 were appointed clearing agents on behalf of the contesting defendants with prior authority but in any case the appointment was ratified by letter dated 30th May, 1967 (Exh. 6/1) long before the goods were cleared, on 3rd June, 1967. I, therefore, hold that defendant No. 41 were the agents of the contesting defendants and not the sub-agents of the bank. Issue No. 8 is answered accordingly.

10. As to Issue No. 4 the admitted position is that the total quantity in the two consignments was 1142 bags each containing 55 tbs. The evidence shows that out of this quantity only 993 bags were cleared and stored by defendant No.

4. The remaining 149 bags were torn and their contents were scattered in the K. P. T. Godowns from where the delivery was received by defendant No. 1 directly. Admittedly the contesting defendants received delivery of 390 bags out of the 993 bags. Accordingly only 603 bags containing 33,165 tbs. of goods remained to balance with defendant No.

4. It is also admitted position vide Exh. 6/127 that from the contents of 149 bags directly cleared by defendant No. 1, 4702 tbs. were delivered by defendant No. 1 to the bank. It is also admitted position that a quantity of 20,402 tbs. was found short or missing while the goods were in the custody of defendant No.

4. Therefore, the total balance remaining charged with the bank would come to 17,465 tbs. However, according to the account (Exh. 7/1) produced by the: bank they sold 15,862 tbs. at Rs. 1.2) per lb. and a quantity of 1,1731 tbs. at Re. 0.62 per., lb. Therefore, the total quantity sold according to the bank was 17,0351 lbs. whereas the balance admittedly in the custody of the bank ought to be 17,465 tbs. for which credit should be given to the contesting defendants. P. W. Noor Ahmed admits that a shortfall to the extent of 20,402 tbs. was detected is the contents of 603 bags while they were stored in the godowns of defendant No.

4. The remaining paper bags were torn and the contents were re-packed by the bank without notice to the con testing defendants. It is also admitted by P. W. Mohd. Afzal Khan that after re-packing the goods they were transferred to the bank's godowns without information to the contesting defendants. The same witness also admitted that no intimation in writing was given to the contesting defen dants about the shortage detected in the goods. Admittedly the bank directly settled the matter with defendant No. 4 as regards the shortage @ Rs. 1.75 per lb. as against the import rate of Rs.. 2.30 per lb. It was argued that the condition of the remaining quantity of the goods consisting .of 603 bags was not the same in which they were imported in standard pack ing with the Trade Mark of the manufacturer and, therefore, the contesting defendants were under no obligation to receive the delivery of the same as they were entitled to the goods in the same condition in which they were imported. On these premises it was contended by the learned counsel for the contesting defendants that the bank was responsible for the loss. However, as I have already held that defendant No. 4, the clearing agents, were the agents of the contesting defendants and not the sub-agents of the plaintiff bank, I find no force in the argument than any damage caused to the goods while they remained in the custody of the clearing agents can be the responsibility of the bank. Nor is there any ,force in the submission that the contesting defendants were entitled to refuse to take delivery to the prejudice of the bank for the reason that the goods were damaged while they remained in the godown after their character by the clearing agents of the defendants.

11. To sum up, it may be stated that admittedly out of 993 bags cleared by defendant No. 4 a quantity of 390,bags was delivered to the defendants against payment to the bank leaving the balance of 603 bags containing 33,165 tbs. In addition to this 4,702 lbs. of goods were delivered by defendant No. 1 from the 149 bags directly cleared by him. Therefore the total balance of goods under charge with bank was 37,867 tbs. out of which a quantity of 20,402 was found short, leaving a balance of 17,465 tbs. According to evidence of the bank, they sold 17,035 lbs. which leaves a balance of 429 lbs. unexplained. Findings accordingly. It was contended on behalf of the contesting defendants that the entire contents of 603 bags, the remaining balance after defendants took delivery of 390 bags, were misappropriated and some other goods were disposed of by the bank as the goods of the defendants. This contention is based on the ground that evidence on-record shows that the goods lying in the godowns were not in the standard packing as they were received from the foreign suppliers under their trade mark and were lying scattered mixed with cement. These goods were admittedly taken over by the bank and shifted to their own godown under their control and custody. As to the effect of the action on the part of the bank to take over the goods without notice to the contesting defendants, 1 shall discuss the question under other issues. However it is clear from the evidence that there was shortage of 20,402 lbs. (370.94 bags) for which defendant No. 4 were responsible as the agents of the contesting defendants and not the bank. There is no evidence that the bank misappropriated the entire quantity of 33,165 tbs. In their letter dated 27th July, 1968 (Exh. 6/75) the bank has explained the position to defendant No. 4, who by their letter dated 16th October, 1968 (Exh. 6/78) accepted responsibility for the loss of 20,402 tbs. and agreed to pay cost at the alleged ruling market price of Rs. 1.75 per lb. Finding accordingly. These issues can be conveniently disposed of together. The first question that arises for consideration is whether the counter-claim set up by the contesting defendants is barred under the provisions of section 69 of the Partnership Act for want of registration of the partnership firm of M/s. Bright Leather Works (defendant No. 1) who was admittedly the other contracting party with the plaintiff bank. Mr. Khalil-ur-Rehman candidly conceded that the defendant firm is not registered and did not advance any argument, how the counter-claim set up by the contesting defendants was not hit by the provisions of section 69.

12. Now Order VIII, rule 6 of the Code of Civil Procedure provides that the effect of set off pleaded in the written statement is that such written statement shall have the same effect as a plaint in a cross-suit. It is also well settled that whilst a set-off is essentially a defence to the action by the plaintiff, a counter-claim is in the nature of a cross-action. In the present case the case set by the defendants in their counter-claim claiming damages and rendition of accounts from the plaintiff bank is clearly an amalgam of both a set-off as well as a cross-action, seeking to wipe out the plaintiffs claim and making an additional claim. Additionally rule 162 of the Sind Chief Court Rules (O. S.) as applicable to this Court, also provides that the counter-claim pleaded by a defendant, shall have the same effect as a cross-suit. Such being the nature of the counter-claim: it obviously falls within the restrictive provisions of subsection (3) of section 69 of the Partnership Act, which have the effect of applying the bar contained in subsection (2) of the said section, to a claim of set-off or other proceeding to enforce a right arising from a contract. Subsection (2) of section 69 stipulates that no suit to enforce a right from a contract shall be instituted in any Court by or on behalf of a term against any third party unless the Perm in registered Accordingly the counter-claim of the defendants is not maintainable and cannot be adjudicated upon, in absence of registration of the firm.

13. In this view of the matter the question of limitation raised in Issue No. 9 does not arise.

14. Before considering the question whether any amount is due from the defendants to the plaintiff' it is necessary to dispose of an important argument advanced on behalf of the contesting defendants. It was con tended that since the bank was the pawnee of the goods belonging to the defendants it was its obligation under the law to preserve intact the goods and return the same in the same condition, to enable itself to file action for the recovery of its dues. Reliance in this behalf was strongly placed on A. M. Bury v. Central Exchange Bank Ltd. (P L D 1966 Lah. 1). In this case the Court held that where the bank was unable to return the pledged goods (or prove their loss or damage) it was not competent for, it to bring action for recovery of the debt secured by the pledge of such goods. The decision proceeded on the principle of equity "that the creditor is not entitled to recover the amount of his secured debt when he cannot return the security" But the facts of the reported case are distinguishable inas much as in that case the bank brought the action without accounting for goods in question. In the present case the case of the bank, however, is that the goods were sold by the bank after notice to the defendants an the suit has been brought for the outstanding balance after adjusting the sale proceeds of the pledged goods. It is well established that a pledge has such a right to recover his debt by exercising his right of sale after notice and bring personal action for recovery of the balance. In the cited case their Lordships noticed the rule laid down in Nim Chand v. Jaoa Bundha Ghose ((1895) 22 Cal. 21.) which is in the following terms :

"There can be no doubt that when movable property is pledged to a person for money lent, be acquires, a special property therein, he has a charge upon it for the satisfaction of the loan advanced, and is entitled under section 176 of the Contract Act, either to bring a suit against the owner upon the debt or promise, retaining the goods pledged as collateral security, or he may sell the things pledged upon giving reasonable notice of the sale." 14-A. Obviously therefore, if the pledgee/creditor opts to exercise hi right of sale for the satisfaction of his debt, he cannot retain the good when he sues for recovering the balance of the debt remaining unsatisfied from the sale proceeds of the pledged goods I am therefore of the Con firmed opinion that the principle invoked has no application to the fact of this case and the contention has no force.

15. It was next contended on the authority of Continental Syndicate of Trade v. Lloyds Bank Ltd. (P L D 1966 Kar. 556), that the sale of the pledged goods was mala fide. This contention, without supporting evidence has no merit. Additionally mala fide under section 176 of the Contract Act in putting the goods to sale was rot pleaded by the defendants and hence cannot be considered at this stage.

16. As stated earlier the question as to what is the effect of the action on the part of bank to take over the goods and remove them to their godowns is to be considered. Admittedly the last delivery of goods was taken by the defendants on 7th May, 1968 (vide Exh. 6/76). After that the remaining balance of stock was 603 bags which appear to have been lying intact according to defendant No. 4 as on 28th May, 1968 (vide Exh. 6/72). But vide Exh. 6/75 dated 27th July, 1.968 the bank wrote to defendant No. 4 about the condition of the goods kept in the godowns of the latter in the following manner :-- "After inspecting the goads a few days back we were shocked and surprised ever the condition in which stocks were kept. We had no other alternative but to have takers immediate delivery of the stocks and Store the same somewhere else under proper conditions. As the bags were torn out, delivery was not possible to the original form of packing, here scattered goods were packed in gunny bags in present of your staff. We have to point out that 61 bags out of 83 bags contained the material which was mixed with cement stored by you around these goods The cleaning of the Material could not be done properly as space and facilities available at your godown were not satisfactory. 61 bags still require re-cleaning, rather washing which will further reduce the weight of the goods. After doing the above said cleaning of the stocks we have obtained delivery of 19 paper bags with original packing and 83 gunny bags of full size containing the above-noted material "

17. After describing the condition of the goods the letter pointed out that on weighment it was revealed that the weight of tile quantity thus delivered to the bank on 24th May 1968 came to 12,953 lb-,. Instead of the total contents or 603 bags which should have been 33,165 Ibs. Thin there was a shortage of 20,502 lbs. for which the bank called upon defendant No. 4 to deposit Rs. 46,924.60 the sum, equal to the cost price of the goods. The matter was however, settled by the bank at Rs. 1.75 per pound vide Exh. 6/78 dated 16th October, 1968.

18. It appears from the record that defendant No. 4 has not disputed the fact that the goods were damaged while still stored in their godowns and have accepted responsibility for loss of the quantity mentioned above. However it seems from the evidence that no notice was serve d on the contesting defendants of the arrangement arrived at between the bank and defendant No. 4 for shifting the goods, as well as of the settlement of compensation for the shot fall in the quantity of goods It was urged on behalf of the bank that the contract between the parties as evidenced by documents Exh. 6/2 and Exh. 6/3 clearly shows that the nature of security created in the goods therein is that of hypothecation without right of possession and only a charge was created in the goods by way of security in favour of the bank. Therefore any loss or damage to the goods cannot be the responsibility of the bank. Without going into the validity of this argument it is apparent to me that if the bank bad no possessory right in the goods, how and by what right they took over the custody of the goods without notice to the owners no argument was advanced on behalf of the bank to justify their action in this behalf except what is contained in the letter Exh. 6/75 reproduced above. I therefore hold that the bank legal right to take over the goods and are under a legal liability to for the value of the goods before they are allowed to claim their dues the evidence, however, shows as pointed out above that the goods were handled, by the agent of the contesting defendants in storage. Letter Exh. 6/75 being the contemporaneous record of the circumstances regarding the condition and quantity of goods at the time of delivery to the bank is entitled to due weight as reliable evidence specially as no evidence in rebuttal was brought on record in addition to the admission of defendant No.

4. Whither the bank was entitled to take possession of the goods or not, it cannot be disputed that it had the right to dispose of the goods in satisfaction of their claim after notice. It was riot contended that no notice for sale was given by the bank to the contesting defendants. The only submission was that the price obtained by the bank was below the market price for such goods. The contesting defendants obtained the last delivery order for .100 bags (each containing 55 lbs.) on 7th May 1968 for Rs. 8,937 which means that on that (late the market price was Rs. 1.62 per lb. (vide Exh. 6/76 and Exh. 6 90). This is farther testified by P.W. Noon Ahmed Exh. 6) and P.VV. Mohammad Afzal Khan (Exh. 7) who stated that the bank charged this low rate at the instance of the defendants according to whom the market rate had gone down. This statement was not challenged in cross-examination except a general suggestion that prices had gone up in the market instead of coining down. On the other hand in their evidence the contesting defendants through D.W. Abdul Haneef (Exh. 8) asserted that tire goods could be sold at Rs. 3,50 per pound "provided they were in original packing." In support of this assertion defendants produced correspondence with a party at Lahore, which evidence was admitted subject to parte (Exh. 8/5 to 11). this correspondence shows that the defendants offered their stock in original packing to, National Plastic House. Lahore for this. 3 per pound. In reply the prospective purchasers .asked .for a sample of one bag for inspection but the defendants expressed their inability and informed them that the goods are in loose condition But the prospective purchasers asked car goods in original tracking and offered the price of Rs. 3.15 per pound. It was contended on behalf of the bank that the offer of the purchaser; has not been proved according to lab and cannot therefore be considered as evidence. It is right that no witness freer National Plastic House was produced to prove the documents. The documents do not in any case show that the goods were inspected and offer for purchase made thereafter. When the prospective purchasers were informed categorically that the goods are available in loose condition it is not understood why the Price was quoted and for that matter much higher titan the seller himself quoted. No reliance can, therefore, be packed on such evidence. On the contrary, if anything this evidence would Land to know that the goods in loose condition would not fetch the normal price. I have already, held that for mishandling the goods the defendant's agent was responsible rind not the bank. Defendant Abdul Haneef (Exh. 8 himself in his deposition admitted that he did not deny the Bank's contention that the bags were torn on account of rough handling by his representative. In their letter dated 20th November 1968 (Exh. 6,151) the bank informed the defendants that they had settled the matter with defendant No. 4 regarding the shortfall in quantity at the ruling market price" and that the current market was at Rs. 1.70. This letter also described the circumstances which had brought down the prices in the market. On 3/6/68 (vide Exh. 6/71) the defendants themselves asked the bank to deliver 200 bags to a party at Rs. 1-12-9 (1-79) per pound. In their reply to the first mentioned letter of the bank (Exh. 6/51) the defendants did not deny the prevailing market rate (vide Exh. 8/13).

19. The overall effect of all this evidence is that Rs. 1.75 was the most reasonable assessment of the market price of the goods, which is in fact, the rate at which the bank settled for the loss of the missing quantity with defendant No.

4. I would therefore hold that the defendants are entitled to get credit at this rate for 17,465 pounds as under :

(i) Total contents of 60 bags having 55 Ibs each ... 33,165 lbs. (ii) Contents of 149 lags (after wastage) delivered ... 4,702 lbs. by defendants to plaintiffs

Grand Total 37,867 lbs.

(iii) quantity lost by defendant No. 4 20,402 lbs

Balance 17,465lbs.

20. I have held that credit must be given for this quantity at the above rate for the reason that the bank took over possession of the goods without notice to the contesting defendants but since the bank had the right to dispose of this quantity after notice (which fact is admitted), I have to hold that they have a right to adjust this amount as against their dues. The contesting defendants are entitled on this account to credit for a total amount of Rs. 30,563.75. The position as regards the quantity of 20,402 pounds found short however, stands on a different footing.

21. As already noticed, it is clear from the record that the ban settled with defendant No. 4 regarding the missing quantity without prior notice to the contesting defendants. The plea of the bank has been that defendant No. 4 is not their agent. Obviously therefore the settlement with the latter has the effect of disposal or sale of the said quantity by the bank. Otherwise by what right can the bank settle the matter and compound the loss of goods with the clearing agent on behalf of the owners ? Section 176 of the Contract Act does not confer or recognise any such right upon or of the pawnee/pledgee. In Usman Malik v. Bank of Bahawaipur. Ltd. (P L D 1959 Kar. 725) it was held that if a reasonable notice is not given to the pawnor such sale is not at all effective and cannot be held to be binding on him. If the right of sale by the pawnee recognised by the statute cannot be validly exercised without reasonable notice to the pawnor, how any other disposal of goods can be ? I therefore hold that the settlement with the clearing agent by the bank is not binding on the contesting defendants. In Usman Malik's case it was held that the defendants were responsible to compensate the pawnor for wrongfully converting the goods and it was further held that the measure of damages is the market rate of the goods on the date on which they were wrongfully sold. I am in respectful agreement with this view and therefore the contesting defendants are. to give credit for the compensation worked out by this method. I have already held that Rs. 1.75 per pound was the market price for the goods at the relevant time and that is the rate at which the matter was settled with defendant No. 4 by the bank. Accordingly the defendants are entitled to credit at this rate for the quantity of 20,402 lbs. Thus although by different process of reasoning, the defendants are held to be entitled to credit at the rate of Rs. 1.75 per pound, for the entire quantity of 603 bags containing 33.165 lbs.

22. Lastly the learned counsel for the contesting defendants disputed the correctness of the claim of the bank in their statement of account as regards the godown charges, chawkidars' salary, interest and penal interest on the ground that the goods were misappropriated by the bank. In view of my findings that as regards the major portion of goods the bank had validly exercised the right of sale (except that market price has been found to be incorrect) and compensation for missing goods has already been awarded to the contesting defendants. 1 find no substance in this submission., It has not been pointed out. which entries are objectionable and the bank has proved by evidence that these payments were made by it on behalf of the defendants.

23. The original account statements produced in evidence by the bank were on the case of the bank as pleaded in the plaint. They were asked by the Court to tentatively recast the statements of account prepared on the basis of value of the entire quantity contained in 603 bags at the rate of Rs. 1.75 per lb. and credit shown for this amount to the contesting defendants. In pursuance of this a consolidated statement of 0.17. Account No. 1943 and L. Cs. No. 43167 and 47/67 in the name of defendant No. l was filed on 16th October 1979. Copy of this consolidated statement was supplied to the other side. The learned counsel for the bank stated that this statement of account has been prepared by giving credit for the amount for the 600 bags at the aforesaid rate to the defendants. I am, there fore placing this statement on record and mark it as Exh. A. Mr. Khalilur Rehman raised no objection to the calculations made in this statement of account, but reiterated his contention that no interest can be debited to the defendants in respect of the value of 603 bags as they were misappropriated and no godown charges cart be levied. I have already rejected this conten tion. Mr. Arfin stated that the godown charges were not included in this statement of account after 30th April, 1968. According to this statement final amount due en 31st May 1969 was Rs. 39,267.37. The plaintiff-Bank is, therefore, entitled to a decree for the aforesaid amount with interest at 6% per annum from the date of suit until payment from defendants I to 3 jointly and severally.

24. The suit is decreed against defendants Nos. 1 to 3 as stated above with proportionate costs. S.Q Suit decreed.