The bailment of goods as security for payment of a debt or performance of a promise is called
The bailor is in this case called the pawnor
. The bailee is called
goods can be pledged either by owner or by other person who has the right of ownership of that
For example, in Biddomoy Dabee v. Sittaram
case the goods were left in the
possession of a servant for some time while the owner of those goods was temporarily absent.
Therefore, the pledge made by the servant was held to invalid. Sections 178 and 179 of the
Indian Contract Act, 1872 provides us certain circumstances in which a person can pledge.
- Pledge by mercantile agent 3
- 2. Person in possession under voidable contract 4
- Pledge by pledgee 5
Pledge by mercantile agent:
A mercantile agent is the person who in the customary course of business has an agent's
authority either to sell or consign the goods for the purpose of sale or to buy goods or to raise
money on the security of goods
It is basically a person who is given the power of authority of
goods. That power if given by the owner of the goods. Where a mercantile agent is, with the
consent of the owner, in possession of goods or the documents of title to goods, any pledge
made by him, when acting in the ordinary course of business of a mercantile agent, shall be
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 time of the pledge notice that the pawnor has
not authority to pledge7.
The consent obtained from the owner by the mercantile agent must
free and real. It cannot be obtained by fraud or misrepresentation or with some dishonest
If the goods given to the agent are out of the capacity of the mercantile agent than the third
party who takes pledge from him cannot say that as the goods where in possession as mercantile
agent therefore, he has the power to pledge the goods. The same thing was discussed in the
case named Staffs Motor Guarantee Ltd V. British Wagon Co Ltd
In this case it was discussed
If the goods are entrusted to him in a different capacity, it is not open to a third party who
takes pledge from him to say that they were in his possession as a mercantile agent and
therefore, he had the power to create the pledge.
Last but not the least the pawnee must act in good faith and at the time of pledge the pawnee
should not have noticed that the pawner has no authority to pledge the goods.
Therefore, if the pledge is made by the mercantile agent than following condition must be there:
- The person pledging the goods must be a mercantile agent.
- Mercantile agent must be in possession either of the goods or the
documents of title to goods.
- Such possessions must be with the consent of the owner.
- Pledge must have been made by the mercantile agent when acting in the
ordinary course of business.
- The pawnee must act in good faith.
- Section 2(9) of Sale of Goods Act
- Section 178 of the Indian Contract Act
- (1934) 2 KB 305
- The pawnee should have no notice of the pawner defect of title.
Pledge by documents of title
When all the rules and regulations are followed by the mercantile agent and the pawnee the
goods can be pledged. And after pledging the pledge gets the goods title. As per the Sales of
Goods Act, 1934 documents of title to goods includes a bill of lading, dock warrant, warehouse
keeper's certificate, wharfinger's certificate, railway receipt, multimodal transport document,
warrant or order for the delivery of goods and any other document used in the ordinary course
of business as proof of the possession or control of goods or authorizing or purporting to
authorize, either by endorsement or by delivery, the possessor of the document to transfer or
receive goods thereby represented9
Pledge by person in possession under voidable contract
When the pawnor has obtained the possession of the goods pledged by his under a contract
violable under section 19 or section 19A, but the contract has not been rescinded at the time of
pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without
notice of the pawner's defect of title10
One of the leading cases to debate the above concept is Philips v. Brooks Ltd
11. The facts of
the case are as follows, On 15 April 1918, a person named North entered Phillips' jewellery
shop and said, "I am Sir George Bullough". He wrote a dud cheque for £3000 to buy some
pearls and a hoop. He said he lived in St. James's Square. Mr Phillips checked the phone
directory and located there was someone there by that name. Mr Phillips than asked Mr. North
that would he really like to require the jewellery with him or not.
To this Mr North replied that
he would go away the pearls but will take the ring for his wife as her birthday gift. Mr North
then pawned the ring to Brooks Ltd for £350. When the false cheque was dishonoured, Phillips
sued Brooks Ltd to urge the ring back. After hearing both the parties the judge Horridge J gave
the judgement that the shop owner had already taken the danger by opening the shop.
person coming within the shop may or might not be an equivalent personality as said by the
person himself. As per him, "The minds of the parties met and prescribed all the terms of the
sale, the thing sold, the worth and time of payment, the person selling and therefore the person
buying. the very fact that the vendor was induced to sell by fraud of the customer made the sale
voidable, but not void.
He couldn't have supposed that he was selling to the other person; his
intention was to sell to the person present, and identified by sight and hearing; it doesn't defeat
the sale because the customer assumed a fictious name or practised the other deceit to induce
the seller to sell."
Apart from goods which are pledged by a person who has obtained possession under a voidable
contract but what if the contract under which its possession is obtained is itself void. Therefore,
the person in possession of goods cannot create a valid pledge.
Central National Bank Ltd v. United Industrial Bank Ltd
12. In this case it is discussed that the
fact that the fraud or deception practiced by the person obtaining possession is of such a
character as to make him guilty of a criminal offence would not make any difference in the
application of this principle. A agreed to sell certain shares to B and sent the share certificates
and blank transfer deeds to the defendant bank to deliver them to B on receiving payment of
The bank sent one of its clerks to B's office with these papers. The clerk placed them
on the table and allowed B to scrutinize then but insisted on payment of the price before B took
them. B left his office with these documents saying that he was going out to bring the money
but disappeared and subsequently pledged them with the plaintiff Held, that in these
circumstances B obtained possession of the shares without the consent of A and that the
plaintiff did not acquire any title against the defendant bank or A.
If the contract is invalid it can be revoked but not at the time of the pledge. It can be revoked
by giving notice to the other party regarding your intention of revoking the contract. And if the
pledge is still made than it won't be considered as a valid pledge.
Pledge by pledgee
- Pledge where pawnor has only limited interest
Pledge where pawnor has only a limited interest. Where a person pledges goods in which
he has only a limited interest, the pledge is valid to the extent of that interest13. As per
section 179 if a person pledges a good in which he/she has limited interest than that pledge
is considered valid only to the extent of that interest. And if the pledge which is in favour
of pledgee has not taken place than any re-pledge made by him will considered void.
the above situation can be explained by the following cases:
- Firm Thakur Das v. Mathura Prasad 14 In the above case the
plaintiff Mathura Prasad pawned 3 ornaments in Kartika Sambat 1885. And the
ornaments were pledged more than once and to different person. The primary
defence raised with the aid of using the existing appellant, had been that
he turned into now no longer a sub-pawnee however turned into a transferee
in good faith, that the declare turned into barred with the aid of using
time and that the plaintiff turned into now no longer entitled to get lower
back the decoration that turned into lying with him due to the fact he was
now no longer the individual that had really pawned it.
- Jaswantrai Manilal v. State of Bombay15
In this case the bank had an overdraft. The bank did not use the overdraft facility for a
long time. So, when it attempted to sue the exchange bank it was itself in crisis and had
pledged their securities to another bank and redeemed those securities and pledged it to
a private financer. The court in this case gave the judgement that the pledge was not
valid. This is so because the pledger had not used the overdraft facility so pledgee
in such case has no interest to pledge the goods to the third party.
As per the above stated fact it clear that the consent given for the goods ownership must be
valid. Second thing is that the whole act must be done in good faith. If the contract is void from
the consent itself than the pledge made out of that contract will also be held void. It
considered as a valid pledge. The party can revoke from the pledge only before the pledge of
goods take place. After the goods are pledge the party cannot revoke itself and say that now
they don't want to pledge the goods.
- Indian Kannon
- Section 172 of the Indian Contract Act, 1872
- ILR 4 Cal 497
- Section 178 of the Indian Contract Act, 1872
- Section 178-A of the Indian Contract Act, 1872
- Section 179 of the Indian Contract Act, 1872
- Section 2(4) of Sales of Goods Act, 1930
- Section 178-A of the Indian Contract Act, 1872
- (1919) 2 KB 243
- AIR 1954 SC 181
- Section 179 of the Indian Contract Act, 1872
- AIR 1958 All 66
- AIR 1956 SC 575