171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers. Bankers; factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain, as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.

General as distinct from particular lien: Bankers.---This "general lien," as it is called by way of distinction from the "particular lien" of an artificer for work done by him on the particular goods in question, was originally established in England, as regards bankers and others, as a proved usage of trade; but, once being so established, it became part of the law merchant, and as much to be judicially noticed as any other part of the law. The right does not extend to securities or other valuable property deposited with a banker merely for safe custody or for a special purpose, and this on the ground that the limited and special purpose must be deemed to imply a contract to the contrary, which seems to account for the absence from the text of any words expressly making an exception in such cases. Where a member of a firm deposited a lease to secure a particular advance to the firm, it was held that the banker had no lien for the general balance due from the firm. Nor does the lien of a banker extend to title deeds casually left at the bank after a refusal by him to advance money on them; and where a deed, dealing with two distinct properties, was deposited with a memorandum charging only one of the properties with a specified sum and also the general balance due to the banker, it was held that he had no lien on the other property comprised in the deed.

But, in order that the general lien may be excluded by a special agreement, whether express or implied from the circumstances, the agreement must be clearly inconsistent with the existence of such a lien. Accordingly a deposit of valuable with a banker to secure debts of a customer due to him as banker is subject to the bankers' lien for the customer's general debts to him unless the customer can prove an agreement to give tip his general lien. Such an agreement may be evidenced, for example, by a memorandum of charge declaring that the deposit is to secure overdrafts not exceeding a named amount. This excludes the banker's lien for any greater amount. As to boxes or sealed parcels deposited with a banker for custody without informing him of their contents or making them accessible to him, he has no lien on them even if the customer is in the habit of leaving other securities with the banker against advances.

A banker's lien, when it is not excluded by special contract, express or implied, extends to all bills, cheques, and money entrusted or paid to him, and all securities deposited with him, in his character as a banker. In the case of money and negotiable securities, the lien is not prejudiced by any defect in the title of the customer, nor by equities of third persons, provided the banker acts honestly and without notice of any defect of title. But there is no lien for advances made after notice of a defect in the customer's title, or after notice of an assignment of the moneys or securities in the banker's hands. And in the case of securities which are not negotiable, the lien is confined to the rights of the customer herein, and is subject to all equities affecting them at the time when the lien attaches. A banker's lien can attach to money so long as it remains an earmarked sum of money, but money paid into a bank to be credited to the current account of the person making the payment does not constitute a bailment, so that there is no question of lien.

Factor.---A factor is an agent entrusted with the possession of goods for the purpose of sale. He may buy and sell either in his own name or in that of the principal, though he usually sells in his own name, without disclosing that of his principal. The factor is said to have a special property in the goods consigned to him. Private instructions to sell only in the principal's name or within fixed limits of price will not make him the less a factor or deprive him of his claim to lien. The secretaries and treasurers of a company, who have made advances to the company and incurred expenses and made disbursements on behalf of the company in the conduct of its business, are not factors, and are not entitled to any lien on the property of the company in their possession. Similarly a bania in Calcutta has no lien for a general balance of account in the absence of an express contract to the effect. Though advances made by a factor for the sale confer a lien on him, they do not confer upon him the right to sell invito domino. To claim such a right there . must be an agreement either express or to be inferred from the general course of business or from the circumstances attending the particular consignment.

Conformably to the principle governing all general liens, a factor's lien, where it exists, applies only to debts due to the factor in that charactor; it does not extend to debts which arise prior to the time at which his character of factor commences. But it extends to all his lawful claims against the principal as a factor, whether for advances, or remuneration, or for losses or liabilities incurred in the course. of his employment in respect of which he is entitled to be indemnified.

In order that the lien may attach, the goods must come into the possession, actual or constructive, of the factor. If, for instance, a factor accepts bills on the faith of a consignment of goods which, by reason of the bankruptcy of the principal, are never received by him, he has no lien on the goods as against the principal's trustee in bankruptcy. Nor does the lien extend to goods acquired otherwise than in his character of a factor, or entrusted to him with express directions or for a special purpose inconsistent with the existence of a general lien. Instructions to provide, out of the proceeds of a consignment, for a bill of exchange drawn by the principal on the factor in favour of a third person will exclude the factor's general lien unless he pays the bill of exchange.

Wharfinger.---The lien of a wharfinger is, generally speaking, only effective as regards claims against the owner of the goods. He has no lien as against a buyer for charges becoming due from the seller after he has had notice of the sale; and where it was agreed between a buyer and seller, before the goods sold came to the hands of the wharfinger, that the contract of sale should be rescinded, it was held that he had no lien as against the seller for a general balance due to him from the buyer.

Owners of a screwhouse who have a wharf as an accessory are not wharfingers.

Attorneys.---Taking a special security from the client is not necessarily an abandonment of the general lien, but it will be so if the circumstances are inconsistent with the continuance of the lien, and if the solicitor does not expressly reserve his lien, an intention to waive it will generally be inferred, having regard to the solicitor's duty to give his client full information.

A solicitor who is discharged by his client holds the papers entrusted to him subject to his lien for costs; and the lien extends also to translations of documents made by the Court's translator at his expense. If, however, a solicitor discharges himself, he is not, entitled to a lien. S. 1 saves usages and customs of trade not inconsistent with the provisions of this Act, and the usage of trade of attorneys is not inconsistent with this section. Applying this reasoning, it was held by the Calcutta High Court that a dissolution of a firm of solicitors operates as a discharge of the client who employs them, and the attorneys are not entitled to retain the papers until their costs are paid.

The kinds of lien dealt with in this Act are as follows:---

(1) Lien of finder of goods (S. 168, above);
(2) Particular lien of bailees (S. 1770, above);
(3) General lien of bankers, factors, wharfingers, High Court attorneys and policy-brokers (S. 171, above);
(4) Lien of pawnees (Ss. 173, 174, below); and
(5) Lien of agents (S. 221, below);

Some further comments with regard to liens, general and particular, of agents and. sub-agents, and to the modes in which such liens may be extinguished or lost, will be found in notes on S. 221, post.

The sections of the Contract Act relating to lien are not exhaustive, and do not negative the existence of lien in cases not specified therein. On general principles, and in the absence of any direct provision to the contrary, an arbitrator has a lien on his award for the payment of his reasonable charges

Lien---Right to lien not exhaustive in the section---Other liens also possible. Section 171 of the Contract Act limits the right to a general lien and not to liens which arise by common law or by express or implied contract. In my opinion, the provisions of section 171 are not exhaustive at all.

Therefore the lien of a party may be covered by any other principle or ground.

General lien of Banker---Further of appellants opening separate fixed deposit accounts with respondent-Bank in names of his two sons and two daughters (all minors at relevant time) with different amounts and himself operating same under arrangement with Bank---High Court coming to conclusion that deposited amount belonged to father of appellants and that appellants were mere Benamidars---No gifts of amount deposited in favour of appellants or Fixed Deposit Receipt holders was found made out---Principles contained in S. 171, held, were attracted to case in circumstances---Decision of High Court, therefore, did not suffer from any infirmity.

Banker---General lien of---Non-contesting defendant approaching Bank for depositing in fixed account certain amount---Subsequently, such defendant dividing his account into two fixed deposit accounts in names of his two minor sons---Another account also got opened by him in name of his daughter---Even another account to be operated jointly or severaly by defendant and another got opened by him---Fixed deposit receipt of all four accounts subsequently got pledged by defendant for obtaining overdraft facility---Fixed Deposit Receipts also periodically renewed either by collecting interest or by re-investing principal amount alongwith interest by such defendant---Held: (Such contesting) defendant being real owner/depositor of amounts standing in name of plaintiffs (in four different accounts), principles contained in S. 171 of Contract Act to get attracted.

Banker's lien u/s. 171 qua amount deposited in name of benamidars---Real owner/depositor of amounts in name of benamidars himself opening an account with Bank and overdrawing in his account---Bank diverting balance from accounts in name of benamidars towards overdrawn amount by real owner/depositor in his account---Held: Once it is found that real owner/depositor of amounts in accounts of benamidars had alone been dealing with Bank in respect of benami accounts, principles contained in S. 171 get attracted entitling Bank to divert amounts from benami accounts to account of real owner/depositor towards amount overdrawn by him in his own account.

Building contract---Contractor has no lien on building or material used in building for payment of his bills---Material used becomes property of owner. A building contractor has no lien on constructions made by him for the payments of his bills. This kind of lien is not recognized by section 171. No lien can arise from a building contract, whether by operation of law or under the terms of the contract. The rule is that property in material built into a building ceases to be the property of the contractor and becomes that of the owner.

Separate goods pawned for separate advances---One pawner---Pawnee bank may combine all goods to realize all advances by their sale. Where the Bank with whom the goods were pledged combined for accounts of the pawner into one realization account so as to make the goods pledged in each account security for the total balance due on all accounts, grievance was made that this action of the Bank deprived the pawnee of his right under section 177 of the Contract Act, to redeem the goods in each account separately, at any time before the sale.

Held: a Banker, unless precluded by agreement, is entitled to combine different accounts kept by the customer in his own right, whether deposit or current and to exercise his lien or set-off for the resulting balance. The right of the pawnor under section 177 of the Contract Act, 1872 to redeem pledged goods at any time before they are sold is subject to the Bank's right under section 171 of the Act Which provides that in the absence of a contract to the contrary the Banker is entitled to retain as security for the general balance of account any goods bailed to him. Accordingly the Bank in the case was entitled to treat the goods pledged in the four loan accounts as security for the general balance which became due to it by the merger of these accounts in the realization account.

Banker's lien u/s. 171 qua amount deposited in name of benamidars---Real owner/depositor of amounts in name of benamidars himself opening an account with Bank and overdrawing in his account---Bank diverting balance from accounts in name of benamidars towards overdrawn amount by real owner/depositor in his account---Held: Once it is found that real owner/depositor of amounts in accounts of benamidars had alone been dealing with Bank in respect of benami accounts, principles contained in S. 171 get attracted entitling Bank to divert amounts from benami accounts to account of real owner/depositor towards amount overdrawn by him in his own account.

172. "Pledge," "pawnor," and "pawnee" defined.---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 the "pawnee."

The bailee tinder a contract of pledge does not become owner, but, as having possession and right to possess, he is said to have a special property. Any kind of goods, documents, or valuable things of a personal nature may be pledged. Delivery is necessary to complete a pledge; it may be actual or constructive. It is sufficient if the thing pledged is delivered under the contract within a reasonable time of the lender's advance being made.

Government promissory notes may be pledged, but this must be done as required by statute by endorsement and delivery. It seems that a valid pledge of shares may be effected by delivery of the share certificate. The rules of delivery and the like which are generally applicable to bailments are applicable here. A pawnee may redeliver the goods to the pawnor for a limited purpose without thereby losing his rights under the contract of pledge, as for the purpose of enabling the pledgor to sell the goods on the pledgee's behalf. It has even been held that there is a valid pledge where the goods remain in the warehouse of the pledgor, as the pledgee has no convenient place to store them. Appa Rao v. Salem Motors. This case seems to go further in that there was no suggestion that the retention of custody was for the purposes of the pledgee, or even for the common purposes of pledgor and pledgee, and there was no evidence, that the pledgee had ever seen and identified the van as his security. If the pawnor abuses his authority in such a case by selling or pleading afresh on his own account to a third person who gives value in good faith, the pawnee is not entitled to the goods as against that person, who has received possession from an owner lawfully in possession, though using his possession fraudulently.

According to mercantile usage found to obtain in the city of Amritsar, if a person leaves goods with another and then borrows money from him, the loan is to be understood to be made on the security of the goods, so that if the loan is not repaid the creditor may sell the goods and appropriate the proceeds of the sale towards his debt.

It is clear from the definition of "bailment" (S. 148, above) that there can be no pledge of goods unless there is an actual delivery of the goods. A loan, however, may be secured by a hypothecation of goods. Such a transaction does not require delivery of goods for its validity; nor can it be said to be prohibited by the Contract Act merely because the Act contains provisions for bailments of pledges and none for hypothecation of goods.

The Contract Act does not state that the whole of the Law of Contract in British India is comprised in the Act. In fact, the preamble of the Act shows clearly that the Act only contains a portion of the Law of contract and there, is nothing to prevent a person from hypothecating his goods to another person for security. The ordinary principles of equity apply in such cases, namely, the question becomes whether there was an intention to create a security and, if there was an intention to create a security, equity gives effect to it. It is quite clear that in a case like this, it. is impossible to hold, where a large body of the community is engaged in commercial pursuits, say, where thousand tons of coal or a large parcel of goods is concerned, that the Banker is bound to take actual possession of property.

Pledge---Monthly statements of stocks lying in godown showing goods as pledged with defendant-Bank---All such documents signed by authorised person on behalf of plaintiff---Debit advice vouchers produced by defendants showing conveyance charges paid to Godown Keeper visiting godown, and debited to account of plaintiff---Goods, held, in possession of defendant under pledge and not merely hypothecated.

173. Pawnee's right of retainer. The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

The pawnee makes himself a wrongdoer if he persists in holding the goods after tender of all that is due. In that event his "special property" is determined by his wrongful refusal of a tender properly made, and the pawnor can recover the goods.

Goods---pledged to Bank---Rights of bank---When adjustment of loan may be claimed by pledger.--- The pledgee Bank as a rule acquires a lien over pledged goods for the recovery of his dues and has a right, after notice to the debtor, to sell those goods to reimburse himself. It is only where such a sale is actually held that the debtor can claim an adjustment of the sale proceeds of the goods against the amount claimed by the bank.

174. Pawnee not to retain for debt or promise other than that for which goods pledged. Presumption in case of subsequent advances.----The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged: but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances .made by the pawnee.

This section does not appear to need any comment, except that the presumption mentioned at the end does not apply to advances made on a new and different security.

175. Pawnee's right as to extraordinary expenses incurred.---The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

"Receive."---Note that the word is not "retain", as in the two preceding sections, but "receive". A pawnee has, therefore, no right of lien for "extraordinary" expenses, as he has in the case of "necessary" expenses (S. 173), but has only a right of action in respect of them.

176. Pawnee, s right where pawnor makes default. If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

Pawnee's rights.----It is sufficient to cite one or two modern dicta. A contract of pledge carries with it the implication that the security may be made available to satisfy the obligation, and enables the pledgee in possession (though he has not the general property in the thing pledged, but a special property only to sell on default in payment and after notice to the pledgor) although the pledgor may redeem at any moment up to sale. After sale it is the pawnee's ordinary right to recover the balance of the loan unsatisfied on the sale of the pledge.

Where no time is originally stipulated for payment, it seems that the debtor is not in default until notice is given by the creditor that he requires payment on a certain day, and that day is past. The debtor is then in default, and is in the same position as if a day for repayment had been fixed in the original contract.

It must be observed that the contract of pledge differs essentially from that of mortgage. A mortgagee does acquire general property in the thing mortgaged, subject to the mortgagor's right to redeem. Foreclosure is a judicial determination of a defaulting mortgagor's right, whereby the mortgagee's property becomes absolute. A pawnee, not being the legal owner, is not entitled to foreclose, but has only power to sell; and authorities on mortgage transactions are to be applied to cases of pledge, if at all, only with great caution.

"May sell the thing pledged."---The power conferred on the pledgee under this section to sell the property without reference to the Court does not take away his right to sue the pawnor on the debt or bring a suit for the sale of the property pledged to him. There is nothing in the Act to forbid the pawnee from buying the thing pledged at the sale, though he cannot sell to himself. But it has been held by the Privy Council that a sale by the pawnee to himself, though unauthorised, does not put an end to the contract of pledge, so as to entitle the pawnor to have back the thing pledged without payment of the debt secured by it. From this point of view it would seem that a sale by a pawnee to himself is not an act "inconsistent with the conditions of the bailment" within the meaning of S. 153 (ante), so as to entitle the pawnor to avoid the contract of pledge at his option, but is on the same footing as a premature sale (see the commentary on that section).

Reasonable notice of sale.---The section is mandatory and the required notice must be given notwithstanding any contract to the contrary. Unless there is reasonable notice, the pawnee cannot sell the thing pledged; but it is not necessary that the notice under this section should state the date, time or place of the intended sale. A notice by the pledgee to the pawnor that unless the latter redeems the articles pledged within a fortnight, the pledgee will sell them is good notice, though the pledgee may not sell the goods until some days after the expiration of the fortnight.

Limitation.---The period of limitation for a suit on the loan is that prescribed by the Limitation Act, 1877, Sch. II, Art. 57 (see now the Limitation Act, 1908, Sch. I), that is, three years from the date of the loan, whether the suit be to recover the original amount of the loan, or to recover the balance after sale of the thing pledged. And if the suit be in respect of a promise, the period is three years from the breach of the promise under Art. 115 of the same Act. And where the suit is for the sale of the property pledged, the period of limitation is six years from the date of the pledge under Art. 1:20 of that Act.

Provisions of S. 176---Entitle Bank to file suit against its borrower on basis of debt/Promise instead of selling goods.

Notice---Pledgee's right to sell---Requirements---Pledgee, before exercising his right to sell goods pledged with him, is required to give a reasonable notice to pledgor of his intention to sell---At time of actual sale, however, pledgee is not bound to serve another notice to pledgor.

Pledgee of chattel with power of sales exerciseable under certain conditions selling chattel without performing conditions and guilty of wrongful conversion---Measure of damages in such case is value of chattel at time of conversion less amount for which it was pledged---Auto parts dealer in order to secure loan pledging with Bank auto parts and giving a list containing details of spare parts with their price to the Bank:--Some of the spare parts found missing---Litigation between Bank for recovery of loan and auto dealer for damages for conversion of pledged goods---Controversy over value of missing spare parts:--Held: value of missing auto-parts to be assessed according to rates given in the list given to Bank containing details of pledged spare parts with their prices and not according to the market value prevailing at time of passing decree in suit filed by pawnor---In view of years of litigation value of missing auto-parls enhanced and decree passed accordingly.

Notice---Pledgee's right to sell---Requirements---Pledgee, before exercising his right to sell goods pledged with him, is required to give a reasonable notice to pledgor of his intention to sell---At time of actual sale, however, pledgee is not bound to serve another notice to pledgor.

Notice by pawnee of intention to sell goods pawned---Contents of.---The requirement of section 176 is that the notice should be reasonable. It is, therefore, for the pawnee 1o choose the time, after notice under section 176, to put his power of sale into operation and in order to do so, he does not require any further authority or permission from the debtor. Of Course this power should not suffer from absence of bona fides. it is enough if the notice contains material for which the debtor can infer as to what debts he has to pay to the pawnee. It is also not necessary that the notice should contain the date or place of sale or that the pawnee should first arrange the sale of the pledged goods, and then communicate his decision to the pawnor.

Notice of sale given---Sale may be made at any time---Delay in selling goods immaterial.---The power of sale given to the pawnee under this section is subject to only one limitation, which is, that. the notice of sale should be reasonable. The section does not require that the amount due from the pawnor should be specifically stated in the notice. Where there is no evidence to show that delay in affecting the sale was deliberate and mala fide or that the sales were improper in any way or much below the market rate, no inference of bad faith on the part of the Bank can be drawn.

Pawnor---Rights of---May either sue for debts or sell the property to recover debt---Both rights are concurrent.---Under S. 176 the pawnee has a right of action for the debt notwithstanding the possession of the goods, subject to the pawnor's right to redeem the goods upon tender of the amount due before the sale. It is, therefore, clear that the right to proceed against the property is not merely accessory to the right to proceed against the debtor personally. Thus a pledgor cannot compel the pledgee to exercise the power of sale or its adjustment as a means of discharging or satisfying the amount due to him. The pledgor, therefore, is competent in law to sue for his debt without selling the pledged property and adjusting its price towards the payment of the debt. He has, however, to keep the property pledged in tact so that he may be able to hand over the security to the pledgor on payment of the debt by him.

Pawnee not repaying debt---Security not sufficient for repayment of debt---Pledgee may sue for recovery of amount of debt.

Pledge---Pawnee’s right on default by pawner---Goods pledged with Bank losing price every year----No evidence to proof that pawner ever asked pawnee---Bank to sell such goods or sought permission to find customer therefor---Held, pawnee-Bank not obliged, in such case, to sell pledged goods and after adjusting sale proceeds thereof sue for balance amount if any.

Pledge of goods with Bank---It is optional with bank either to sell pledged goods with it or to retain them as a collateral security and bring a suit against pawnor upon debit.

Claim of damage---Damage caused to pledged goods on account of self-heating---Defendants themselves informing plaintiff bank, making of arrangements for sale of goods---Defendants taking up matter with insurance company on account of damage caused and at no point of time any request or demand made upon plaintiff bank to take up matter with insurance company---Goods deteriorated to such an extent that even defendants finding difficult to dispose them off---Responsibility cannot be placed upon plaintiff bank for damage caused to goods for not making claim upon insurance company, in circumstances--Documentary or oral evidence not produced to establish that stock had been damaged on account of any negligence or carelessness on part of plaintiff bank---Avoiding of bank to recover damage from insurance company not established---Held, stocks were damaged on account of self-heating and plaintiff bank not responsible in respect of such loss.

Pledged goods---Notice should be given to pledgor before sale of goods---Clause to the contrary in the agreement has no effect. That in default of such payment as last aforesaid the Bank may at any time or times thereafter without any notice to the Borrower (without prejudice to the Banks' right of suit against the Borrower either by public auction or private contract absolutely sell or otherwise dispose of the Goods Produce and Merchandise then remaining pledged to the Bank under this agreement.

Held: Section 176 of the Contract Act is not one of those provisions of law, which is subject to the parties' contractual freedom. This being the position, I am clearly of the opinion that the terms of the agreement arrived at between the parties referred to above will not make any effect on the right of the pawnor so get a notice about the disposal of the goods as contemplated in section 176 of the Contract Act.

Sale of goods pledged---Notice to pawnor---Conditions of such notice.---If the pawnee elects to exercise his power of sale under section 176 of the Contract Act, the sale must be made after giving reasonable notice to the pawner. It appears to me that no hard and fast rule can be laid down in this respect and it will depend on the facts of each case whether the notice given to the pawner was reasonable notice within the meaning of the said provision of the Contract Act. Under the said section, it is not at all necessary that the notice should contain the actual date of the sale and the time. It only requires that the pawner should be given a reasonable time to redeem the property pledged with the pawnee and the pawnee must inform him that if by such and such time he will not pay the amount due from him, the property pledged with him will be sold for the recovery of the amount due.

Sale of pledged property with authority of pawner---Pawner cannot ask for delivery of property later on and offer to satisfy his liability on them.---Held: The sale of the pledged goods being with authority of the pawner no question arises of the failure of the pawnee to produce the goods when the pawner was willing to discharge his liability.

Execution sale of pledged goods---Extension by pledgee without fulfilling conditions laid down in S. 176---Invalid---Letter of lien forming part of agreement between parties---Must be read subject to provisions of S. 176.

Pledge---Pledgee has right to recover debt by exercising his fight of sale after notice and bring personal action for recovery of balance---Pledgee/creditor opting to exercise right of sale for satisfaction of debt---Cannot retain goods while suing for recovering balance of debt remained unsatisfied from sale proceeds of pledged goods.

177. Defaulting pawnor's right to redeem.---If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in addition, any expenses which have arisen from his default.

This is supplemental to the foregoing suction.

Limitation.---The period for a suit against a pawnee to recover the thing pledged is thirty years from the date of the pawn.

178. Pledge by 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 authorised by the owner off 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 'document of title' shall have the meanings assigned to them in the Sale of Goods Act, 1930.

This section is the counterpart of the second paragraph of S. 27 of the Sale of Goods Act, 1930, which relates to sales.

Original S. 178.---S. 108 of the Contract Act, now superseded by Ss. 27-30 of the Sale of Goods Act, 1930, related to the sale of goods by a person other than the owner thereof. The original S. 178 of the Central Act dealt with the pledge of goods by a person other than the owner thereof. That section has been repealed and the subject-matter of the section is now spread over the present S. 178 and S. 178-A of the Contract Act and S. 30 of the Sale of Goods Act. The present S. 178 and S. 178-A were inserted by the Contract (Amendment) Act, 1930, which came into force on the 1st July, 1930.

Pledge by mercantile agent.---By S. 2, sub-s. (9), of the Sale of Goods Act, "mercantile agent" means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consignee goods for the purpose of sale or to buy goods, or to raise money on the security of goods.

By this section the statutory power to pledge goods or documents of title is confined to mercantile agents, being such as in the customary course of their business have authority to deal with goods. This establishes, the curious and anomalous position that the mercantile agent can do what the owner cannot do, that is, make a pledge of goods by a pledge of the documents of title without the attornment of the warehouseman or other custodian. Other cases in which a person other than the owner of the goods may make a valid pledge are dealt with in S. 178-A below and in S. 30 of the Sale of Goods Act considered below. The result is that a valid peldge can no longer be made by any person "in possession" of goods. It can only be made by a mercantile agent as provided in S. 178, or by a person who has obtained possession of the goods under a contract voidable under S. 19 or S. 19-A of the Act as provided in S. 178-A, or by a seller or by a buyer in possession of goods after sale as provided in S. 30 of the Sale of Goods Act.

The changes caused by the amendment of the section may be illustrated by the following examples:---

(1) A commission agent or broker may make a valid pledge of the goods under the old as well as the present section.

(2) A seller left in possession of goods may make a valid pledge under the old section its well as under S. 30 of the Sale of Goods Act.

(3) A person in bare custody of goods may not make a valid pledge either under the old or the present section.

(4) A hirer under a hire-purchase agreement who has entered into a binding agreement to buy goods may make a valid pledge under the old as well as the present section.

(5) A person entrusted with goods for a specific purpose may not make a valid pledge either under the old or the present section.

(6) Under the old law, both the owner and the mercantile agent could create a pledge by delivering documents of title. Under the new law only a mercantile agent can create a pledge of documents of title. The owner must deliver the goods in order to create a pledge.

If a pledgee takes goods from a person of whom he knows nothing and if it turns out that that person's pledging of the goods was a criminal offence, the pledge is not valid and the true owner can recover the goods even if the pledgor may in fact have been a mercantile agent within the statutory definition.

Notice.---The term "notice" in this section includes both express and constructive notice. A purchaser with notice of a prior interest who purchases from a purchaser without notice will not be bound by the prior interest. This principle seems to have been over looked in Appa Rao v. Salem Motors. There D1, who was in possession of P.’s motor van as a mercantile agent for sale, fraudulently pledged it with D3, who took in good faith and without notice of P.’s rights. Later D3 sold the van as an unredeemed pledge to D2 who took in good faith. D1 contested the validity of this sale, and sued D2 and D3. Subsequently, after D2 and D3 had learned of P’s claim, this action was compromised on the terms that the sale to D2, be annulled, and the pledge to D3, revived with a further opportunity to D1 to redeem. In an action for conversion by P against D1, D2 and D3 the Court held that D3 was not a bona fide purchaser without notice under S. 178, as on the revival of the pledge under the terms of the compromise he had notice of P’s claim. But with respect, this was immaterial, because D3, had given value to D2, a compromise providing consideration on both sides, and D2 had no notice of P’s claim a the time of his purchase from D3. The principle above stated therefore applied. Another way of interpreting the compromise would be to regard it as annulling the sale by D3 to D2 ab initio. In this case also D3, would be protected, as at the time of the original pledge, which on this view of the matter had never been determined, he had a notice of P’s claim.

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.

Pledge by seller remaining in possession.---The following are illustrations of a pledge by a seller left in possession of the goods sold:---

(a) B buys goods from A pays for them, but leaves the goods in the possession of A.A then pledge the goods with C who has no notice of the sale to B. The pledge is valid.

(b) A sell 100 cases of cutlery to B under an agreement made in July, 1927, that payment should be made within five months from the date of the agreement and delivery should be taken within that time, the goods remaining in the meanwhile in A’s godown free of rent. In August, 1927, A pledges the goods with C who has no notice of the sale to B. The pledge to C is valid.

Pledge by buyer obtaining possession.---S. 30 (2) of the Sale of Goods Act validates a pledge not only by a person who has bought goods but also by one who has agreed to by them. The hirer under a hire-purchase agreement is not a person who has agreed to buy goods within the meaning of this section unless he is under a binding agreement to buy them. An option to buy will not suffice.

Competition between prior mortgagee and subsequent pledgee.---A mortgages certain goods to B, the mortgage not being accompanied with possession. Afterwards A pledges the goods with C. The pledge to C is not invalid, and C has priority over B.

Documents of title to goods.---By S. 2, sub-S. (4), of the Sale of Goods Act, 1930, "documents of title to goods" includes a bill of lading, dock-warrant, warehouse-keeper’s certificate, wharfinger’s certificate, railway receipt, 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 authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented. Cash receipts given in place of delivery orders are not documents of title to goods within the meaning of this section.

The peldgee does not lose the right of property as pledgee by parting with the custody of the railway receipts or by entrusting them to the pledgor or his agent for the special purpose of dealing conveniently with the goods, e.g. for collecting them from the Port Trust and putting them into the pledgee’s godown.

The question whether share certificates are documents of title within the meaning of the section has given rise to a difference of opinion in the High Courts. In Calcutta it was held that they were not but this was before the enactment of the Sale of Goods Act and the amendment of the Contract Act. In Bombay, another view was taken, even before 1930, that "goods" in S. 108 of the Contract Act include share certificates. The Madras High Court in Elaya Nayar v. Krishna Pattas has expressed the opinion that the Bombay decisions were the more correct, but that since the Sale of Goods Act and the amendment of S. 178 there can no longer be any doubt. The Court saw no reason for giving the word "goods" a meaning in the Contract Act different from that in the Sale of Goods Act, and that a share certificate can therefore be the subject of a valid pledge; but they held that unless the pledgor deposited a deed of transfer with the pledgee or obtained one subsequently, recourse will have to be had to the Court if the pledge is to be realized. It is submitted that the view expressed by the High Courts of Bombay and Madras is the right view. Sarkar, J. of the Calcutta High Court has taken the same view, though without referring to the previous authorities.

Revocation of authority of mercantile agent.---A pledge by a mercantile agent, though made after the revocation of his authority, is valid, provided the pledgee has not at the time of the pledge notice of such revocation.

178-A. Pledge by person in possession under voidable contract.---When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or Section 19-A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of title.

This section is the counterpart of S. 29 of the Sale of Goods act. 1930.

Pledge by person in possession under voidable contract.---A person may obtain possession of goods under a contract which is voidable at the option of the lawful owner on the ground of fraud, misrepresentation or coercion (S. 19), or on the ground of undue influence (S. 19-A). Possession so obtained is not by free consent as defined in S. 14 of the Act. It is nevertheless possession by consent, and the person in possession may make a valid pledge of the goods, provided the contract has not been rescinded at the time of the pledge. There is in such a case a de facto contract, though voidable on the ground of fraud and the like. It is, however, different if there is no real consent, as where goods have been obtained by means of theft as defined in S. 378 of the Penal Code. A thief has no title and can give none.

Where goods have been obtained by fraud the person who has so obtained may either have no title at all, or a voidable title, according to the nature of the transaction. If the nature of the fraud is such that there never was a contract between the parties, the person who so obtains the goods has no title and can give none. Thus if A represents to B that he is acting as agent for C, and B relying on that representation delivers goods to A as buyer, there is not a voidable contract between A and B, no contract at all. No property passes to A and he can neither make a valid sale nor a valid pledge. This is really a case of a fundamental error as to the person with whom one is contracting. There is no real consent and no contract; there is only an offer on B’s part to the person with whom alone he means to deal and thinks he is dealing: See note under S. 13, above, "Error as to the person of the other party." But if a person buys goods with the intention of not paying for them, there is consent, though not free, and a contract, though voidable, and he may make a valid pledge or sale of the goods while the contract is still subsisting, though the fraud may amount to the offence of cheating, as defined in S. 415 of the Penal Code. This was not so under the old S. 178. Under that section a person who obtained possession of goods "by means of an offence or fraud" could not make a valid pledge. Under the present section a person who obtains possession of the goods under a contract voidable under S. 19 or S. 19-A may make a valid pledge though the transaction may amount to an offence or fraud.

179. 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 interest.

This must be taken as subject to the operation of the foregoing section in those cases where a pledge which otherwise would not be valid is made valid by S. 178, it does not matter whether the pawnor has any interest of his own or not. The present section applies to other cases where the pawnor has possession and some interest, but not the whole interest, in the goods; and where it applies, it is immaterial that the pawnee had not notice of the pawnor’s limited interest. Probably it does not apply to a case in which he is not entitled to possess the thing in his own right, but has obtained or been entrusted with possession for some special and limited purpose, and pledges the thing for his own purposes.

Section 179 does not limit the scope of section 178, but saves a pledge to the extent of the pledgee’s own interest notwithstanding the presence of invalidating conditions falling under one of the provisions to S. 178. In other words, whenever he has an interest, the person in possession of the goods or documents has unconditional authority to charge at least that interest.

180. Suit by bailor or bailee against wrong-doer.---If a third person wrongfully deprives the bailee of the use of possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor of the bailee may bring a suit against a third person for such deprivation of injury.

COMMENTS

Under the old Common Law procedure a bailor could not bring an action of trespass, trover, or detinue (these actions being founded either on actual possession or on the immediate right to possession), unless the bailment was revocable at his pleasure either unconditionally or on a condition which he might satisfy at will. An owner not entitled to immediate possession could have only a special action on the case. The bailee could and can always, sue a wrong-doer; and his right does not, as once supposed by some authorities, depend on his being answerable over to the bailor.

The section is hardly likely to present any difficulty in practice, A leaves an elephant in charge of B.C wrongfully takes away the elephant from B.B may sue C for possession of the elephant.

181. Apportionment of relief or compensation obtained by such suits. Whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.

In order words, it does not matter which of them recovers first, or whether one sues or both. Of course the defendant cannot be liable in all for more than the value of the goods, and special damages, if any.