Indian Contract Act Section 178 — Pledge by mercantile agent
CHAPTER IX OF BAILMENT — Bailments of Pledges
Commercial / Corporate
Summary
This section deals with pledges made by a mercantile agent, which is a type of agent who deals in goods or documents of title. If such an agent has the owner's consent to possess the goods or the documents of title, and makes a pledge while acting in the ordinary course of business, that pledge is treated as valid as if the owner had expressly authorised it. This means the pledge will hold up legally even if the agent did not have actual authority to make it.
However, this protection only applies if the person receiving the pledge (the pawnee) acts in good faith and, at the time of the pledge, has no notice that the agent lacks authority to pledge. If the pawnee knows or has reason to know that the agent is not authorised, the pledge will not be valid under this section.
The explanation clarifies that the terms "mercantile agent" and "documents of title" carry the same meanings as defined in the Indian Sale of Goods Act, 1930. This means those terms are to be understood according to that Act's definitions.
Official Text
Where a mercantile agent is, with the consent of the owner, in possession of goods or the document 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 authorised by the owner of the goods to make the same; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.
Explanation.—In this section, the expressions “mercantile agent” and “documents of title” shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3 of 1930).