Grover, J. - (1.) This is an appeal be certificate from a judgment and decree of the Patna High Court in a mortgage suit.
(2.) The facts may be stated:On August 1, 1953 the defendants, who are respondents herein, entered into an agreement (Exh. P-9) with the plaintiff Bank by which a cash credit account was opened, the limit being Rupees 3,50.000/- The defendants hypothecated in favour of the Bank the goods described in general terms in the Schedule attached to the agreement. The arrangement was that the defendants were to be at liberty to sell and dispose of the goods which had been hypothecated in the ordinary course of their business but they were bound to replace the goods disposed of by new goods of equal value, According to Clause 5 of the agreement the hypothecated goods were to be stored or kept at the risk of the defendants and at their expense in good condition. The interest was payable at a certain percentage over the Bank rate the minimum being 5% . The agreement was to operate as a continuing security for the balance from time to time due to Bank and also for the ultimate balance which would become due in the cash credit account. It may be mentioned that we have referred only to the terms of the agreement which are material for the purpose of the present case. The goods which were hypothecated were stored in the godowns which, as admitted in the evidence of one of the defendants himself, were situated within the premises of the mills belonging to the defendants. The key or the keys' of the godowns, however, remained in the custody of the Bank Official i.e. the godown keeper. On July 27, 1954 there was an unexpected and unprecedent flood in the town or Raxaul where the premises of the mills were situated and which got innundated with flood waters. The defendants addressed a letter dated July 27, 1954 to the Bank Manager saying that due to unprecedented floods "a great damage has been done to the goods pledged with you and we are helpless which is already known to you and to your staff when you troubled to come in our factory at the time when the flood was in full swing. The goods which have been damaged by the flood require different sorts of handling to save from further deterioration. We are therefore going to pile loose weight goods to dry them and so there may be variation in counting of the goods which please note."
(3.) On September 29, 1954 the defendants addressed a letter (Exh. I-b) to the Bank the material portion of which is reproduced below: "In the event of your handling over to us delivery of the under mentioned stocks pledged with you and damaged by the recent flood for processing and sale at best available market rate we, hereby undertake to hold the said stocks so delivered to us as trustees for and on behalf of your Bank holding them strictly under lien ( ) to you and we hereby undertaken not to make any other disposition whatsoever of the said goods without your written instructions. We have no right, title or interest nor any claim over the said goods held by us as trustees on your behalf and undertake at any time to hand over to you on demand the goods so long as the same continue to be in our custody. We hereby agree to hand over to you all the sale proceeds of the goods as and when sold by us. ********** We hereby guarantee and promise at the times hereafter to keep you indemnified against all losses, costs, damages and expenses of whatever nature you may sustain or which you may sustain or which you may have to incur by reason of any act of embezzlement, neglect, misfeasance, non-feasance in respect of clearance and sale of the goods at best available market rates and we shall always remain liable and responsible for all the acts of omission of our servants, employees representatives or any other person acting on our behalf." A Schedule of stocks was given in the letter (Exh. I-b) the total book value of which was shown as Rupees 1,04,840/- On the same date the defendants executed a receipt (Exh. 4) to the effect that the stocks mentioned therein which were the same as given in the Schedule to the letter (Exh. I-b) were being held by them in trust in terms of the 'trust agreement" which meant the letter (Exh. 1-b), According to the plaintiff's case the defendants owed to the Bank on December 29, 1954 a sum of Rupees 1,64,884/- 14/3 in excess of the value of the pledged commodities and on December 30, 1954 the defendants executed a mortgage bond in favour of the Bank giving in mortgage two houses at Raxaul described in Schedule A of the plaint. It was stipulated that interest at 1 1/2 % over the Bank rate would be paid the minimum rate being 5 % The mortgage bond was registered on April 20, 1955. By means of a letter Exh 5 (c) dated January 1, 1955 the correctness of the stocks hypothecated as per stock report dated December 31, 1954 submitted by the Bank was confirmed and it was further confirmed by the defendants on that date stood at Rupees 1,69,859-9-3. On November 9, 1955 whatever goods out of the hypothecated goods remained in the godowns of the defendant's mills but under the lock any key of the Bank were stated to have been delivered to the defendants. The finding of the Courts below is also to the same effect. On the same date a notice was sent by the Bank to the defendants for payment of the amount due on the mortgage. This notice has not been included in the printed record but the reply Exh. 1-d, dated January 14, 1956 sent by the defendants has been got printed. In this reply there was no mention whatsoever about the goods which were damaged by the floods not having been delivered to the defendants. This fact assumes material importance because one of the main questions on which the High Court has given its decision against the Bank is that the damaged goods mentioned in the schedule to Exh. 1-B were never delivered by the Bank to the defendants. On August 11, 1956 another notice Exh. 6 was sent by the advocate of the plaintiff Bank to the defendants. It is a short letter and may be reproduced: "Under instructions from my clients. The Central Bank of India Ltd. Muzaffarupur. I beg to give you notice as follows:- (1) That you had cash credit account with my clients at its pay office at Raxaul and a large amount to the extent of Rs. 1,64,948. 14, 3 was due from you on 29th December, 1954 and in security thereof you executed a Deed of Mortgage dated 20-12-1954. (2) That on this account after payments and adjustment of interest a sum of Rupees 1,08,03,383.7.9 (Rupees one lac eight thousand three hundred eighty three annas seven pies nine)only is due as on 31-7-56 besides interest thereafter as stipulated in the bond. (3) That the due date of payment on the Mortgage Bond was 30-12-55 which has expired. (4) That still a heavy debit balance as stated before is payable by you and as you have not seen your way to pay up the same, this is to inform your that unless the amount is paid within a month from night hereof, the matter will be placed in Court without any further reference to you." The defendants sent a reply dated September 27, 1956 saying that the defendants were facing severe repercussions in trade due to labour and other troubles which stood in the way of meeting the demands of the Bank. The Bank was requested to give due consideration to the predicament of the defendants and to consider giving the following facilities and accommodation: "(1) That we are prepared to pay Rupees 5,000 (rupees five thousand) immediately the cash credit facilities are restored and to pay another Rupees 5,000 within three months towards liquidation of the dues in our account. (2) that we will continue to pay to you Rupees 16000 (illeg) yearly from January 1957, towards liquidation of the dues in our account besides payment of interest accrued in the account every month. It may be noted that if our business improves we may pay you more than the stipulated year payment of Rupees 10,000. (3) That a cash credit limit of Rupees 1,50,000 and Docy. ( ) Mills Limit of Rupees 50,000 and Clean Bill limit of Rupees 5,000 may be sanctioned to us forthwith to enable us to fulfil the stipulation enumerated above. (4) That in the event of our failure to pay to you in terms of our above stipulations you may enforce the action contemplated ( ) in the Paragraph (4) of the notice referred to above." The Bank finally filed a suit for recovery of Rupees 1,16,309.37 inclusive of principal, compound interest, interest and ,incidental charges up to November 15, 1957 besides interest pendente lite etc. on the foot of the mortgage after serving a notice dated January 30, 1957.;