Equitable mortgage and pawnee duties: mortgage limited to Banmankhi properties, and unilateral compromise losses were not recoverable.

An equitable mortgage was held to have been created only over the Banmankhi properties, based on delivery of title deeds at Calcutta, so the suit founded on the 1953 mortgage transaction was within limitation; the Rupouli properties were not included. On the pledge dispute, after sale of pledged goods under the Contract Act, the pawnee was required to act with reasonable diligence and keep the pawnor informed. The Bank's unilateral compromise with the purchaser, refund of the price, and related claims for shortage, insurance and litigation expenses could not be shifted to the defendants, and fraud was not proved. The decree was therefore confined to the recoverable mortgage and pledge amounts.

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Issues: (i) Whether an equitable mortgage was created on 14-1-1953 in respect of the Banmankhi properties so as to save the suit from limitation under Article 57 of the Limitation Act, 1908; (ii) whether the defendants were liable to indemnify the Bank for losses claimed to have arisen from the purchaser's refusal to take delivery, the later compromise, and the related shortage, insurance and litigation expenses.

Issue (i): Whether an equitable mortgage was created on 14-1-1953 in respect of the Banmankhi properties so as to save the suit from limitation under Article 57 of the Limitation Act, 1908.

Analysis: The evidence was accepted to show that title deeds were delivered at Calcutta and that the mortgage extended only to the Banmankhi properties in lots 1 to 3. The Rupouli properties were not brought within the mortgage. On that footing, the suit, instituted on the basis of the 1953 mortgage transaction, was within time.

Conclusion: An equitable mortgage was validly created only in respect of the Banmankhi properties, and the suit was not barred by limitation.

Issue (ii): Whether the defendants were liable to indemnify the Bank for losses claimed to have arisen from the purchaser's refusal to take delivery, the later compromise, and the related shortage, insurance and litigation expenses.

Analysis: After the pledged goods were sold under Section 176 of the Contract Act, the Bank dealt with the purchaser's dispute on its own, without seeking the pawnors' instructions or obtaining their consent. The Court held that once a dispute arose, the pawnee had to act with reasonable diligence and communicate material facts to the pawnor under Sections 211, 214 and 215 of the Contract Act. The Bank's unilateral compromise and refund of the price could not enlarge the defendants' liability, and the allegation of fraud was not established on the evidence.

Conclusion: The defendants were not liable for the amounts arising out of the purchaser dispute, compromise, shortage, insurance charges or suit costs.

Final Conclusion: The decree was reduced to the amount legitimately recoverable on the mortgage and pledge transactions, and the mortgage decree was confined to the Banmankhi properties alone.

Ratio Decidendi: After a pawnee sells pledged goods under Section 176 of the Contract Act, any purchaser dispute must be dealt with as an agent of the pawnor, with due communication and instructions; a unilateral compromise or refund made without the pawnor's consent does not bind the pawnor or shift the resulting loss to him.

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