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Who Can Pledge

The bailment of goods as security for payment of a debt or performance of a promise is called pledge The bailor is in this case called the pawnor. The bailee is called pawnee1 The goods can be pledged either by owner or by other person who has the right of ownership of that particular good.

For example, in Biddomoy Dabee v. Sittaram 2 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.
  1. Pledge by mercantile agent 3
  2. 2. Person in possession under voidable contract 4
  3. 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 6 .

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 intention.

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 8.

In this case it was discussed that:
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:
  1. The person pledging the goods must be a mercantile agent.
  2. Mercantile agent must be in possession either of the goods or the documents of title to goods.
  3. Such possessions must be with the consent of the owner.
  4. Pledge must have been made by the mercantile agent when acting in the ordinary course of business.
  5. The pawnee must act in good faith.
  6. Section 2(9) of Sale of Goods Act
  7. Section 178 of the Indian Contract Act
  8. (1934) 2 KB 305
  9. 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 Ltd11. 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.

The 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 price.

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

  1. 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.

    Both the above situation can be explained by the following cases:
    1. 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.
    2. 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 won't be 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. Bibliography:
  2. Manupatra
  3. Indian Kannon
  5. CaseMine
  1. Section 172 of the Indian Contract Act, 1872
  2. ILR 4 Cal 497
  3. Section 178 of the Indian Contract Act, 1872
  4. Section 178-A of the Indian Contract Act, 1872
  5. Section 179 of the Indian Contract Act, 1872
  6. Section 2(4) of Sales of Goods Act, 1930
  7. Section 178-A of the Indian Contract Act, 1872
  8. (1919) 2 KB 243
  9. AIR 1954 SC 181
  10. Section 179 of the Indian Contract Act, 1872
  11. AIR 1958 All 66
  12. AIR 1956 SC 575

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