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Mercantile Laws-I

Notes 4. There is hardly any possibility of the same goods being charged with some other party if
actual possession of the goods is taken by the lender.

8.6 Pledges by Non-owners

The general rule is that it is the owner of the goods who can ordinarily create a valid pledge.
However, in the following cases, even a pledge by non-owners shall be valid:

1. Pledge by a mercantile agent: 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 as valid as if he
were expressly authorized by the owner of the goods to make the same. Such a pledge
shall, however, be valid only if the Pawnee acts in good faith and has not at the time of the
pledge notice that the pawnor has no authority to pledge (s.178)
A ‘mercantile agent’ as per s.2(9) of the Sale of Goods Act, 1930, means a mercantile agent
having, in the customary course of business as such agent, authority either to sell goods or
to consign goods for the purpose of sale or to buy goods or to raise money on the security
of goods. For a pledge by a mercantile agent to be valid the following conditions must be
satisfi ed:
(a) Good faith: The pledgee must have acted in good faith and must not have at the time of
the pledge notice that the pawnor had no authority to pledge the goods. The onus of
proving both these facts rests upon the person disputing the validity of the pledge.
(b) Acting in the ordinary course of business: The mercantile agent must have acted in
the ordinary course of his business. Therefore, if he does the business outside his
business premises or out of business hours, such a transaction would fall outside this
section.
2. Pledge by seller or buyer in possession after sale: Under s.30 of the Sale of Goods Act, a
seller left in possession of goods after sale, and a buyer, who obtains possession of goods
with the consent of the seller, before sale, can create a valid pledge. Once again, for the
pledge to be valid the pledgee should have acted in good faith and without notice of
previous sale of goods to the buyer or of the lien of the seller over the goods.
3. Pledge by a person in possession under a voidable contract (s.178-A): Where a person
obtains possession of goods under a voidable contract the pledge created by him is valid
provided: (a) the contract has not been rescinded before the contract of pledge and (b) the
pawnee acts is good faith and without notice of the pawnor’s defect of title.

4. Pledge by co-owner in possession: One of several joint owners of goods in sole possession
thereof with the consent of the rest may make a valid pledge of the goods.
5. Pledge by a person having limited interest (s.179): Where a person pledges goods in which
he has only a limited interest, the pledge is valid to the extent of the interest. Thus, a pledgee
may further pledge goods to the extent of the amount advanced thereon.

8.7 Rights and Duties of a Pawner and a Pawnee

According to s.176 in case the pledgor fails to pay his debt or complete the performance of
obligation at the stipulated time, the pledgee can exercise any of the following right:
1. Bring a suit against the pledgor upon the default in redemption of the debt or performance
of promise and retain possession of goods pledged as a collateral security; or
2. Sell the goods pledged on giving the pledgor a reasonable notice of sale.

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