Seat Number (In Numbers): 

454517

Seat Number (In Words): FOUR LAKH FIFTY-FOUR THOUDAND

. FIVE HUNDRED AND SEVENTEEN

Semester:  2nd

Name of the Course: Special Contract

Q1

INTRODUCTION

The bailment of goods with the purpose that those goods shall serve as a
security for the payment of a debt or performance of a promise is called
“Pledge” or “Pawn”.
Examples-
1. A borrowed Rs.100 from B and gave his cycle as a security for the
repayment of the amount, in the condition that if A pays back to B he will
get his cycle back. it is called the contract of Pledge.
2. Keeping gold in banks to obtain a loan is called a pledge.

Any form of items, documents, or jewels can be pledged; however, only

movables can be pledged. If the transferred property is immovable, the
transaction shall be governed by the Transfer of Property Act.

According to Section 172 of the Indian Contract act states that “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”.

As a result, a pledge is merely a type of bailment, with the primary

distinction being the contract's purpose. The object of delivery in a
bailment contract is for a specific purpose, whereas in a pledge contract,
the object of delivery is to provide security for a loan or to satisfy an
obligation; this type of bailment is known as a pledge.
The Pawnor transfers/bailed his possessions to the Pawnee as security for
the sum he obtains from the Pawnee in the pledge. The pawnor is
responsible for paying the sum back to the Pawnee, and the Pawnee is
responsible for returning the goods once the pawnor has paid the amount.
If the Pawnee makes unlawful use of the commodities bailed to him, he
will be responsible for compensating the pawnor.

Essential Features of Contract Of Pledge-

1. Delivery of the goods to be pledged
2. In pursuance of the Contract
3. Goods given as security.
4. Return of Goods. But in few conditions, pledgee can sell the goods.
5. Goods include movable goods, documents of title to goods, shares
and stocks

Delivery of the goods to be pledged

The basic prerequisite for a valid contract of pledge is the handover of
possession of a good. In order for the contract to be fulfilled, the indicated
chattel must be delivered in person. The property or other good pledged
must be handed to the creditor, who in this situation is the pawnee, or
the person to whom the pledge has been made.
The physical transfer of the good to the pawnee is referred to as actual
delivery, and the entire good is bailed to him. Pledge by way of
constructive delivery, on the other hand, entails an indirect or symbolic
delivery of the property or item.
For example-The delivery of the key of the warehouse containing the
goods to be pledged to the pawnee.
Delivery can also be made by attornment, which implies that if the
commodities are in the custody of a third party, the pledgor can direct
him to retain them on behalf of the pledgee. Also, for the purposes of a
pledge, delivery of the title to the good or property to be pledged would
be equivalent to actual delivery.
For example- In a Supreme Court case, Subba Rao J held that the
railway receipts for goods was the same thing as delivery of goods and
that pledge entered thereby was valid and the pledgee was invested with
the rights.

ISSUE

A. Whether there is valid pledge between Mr. A and the ABC ltd.Bank

B. Whether ABC Ltd. Bank is entitled to sue the railways for the loss
worth Rs. 5 lakhs?

RULES

SECTION 172 OF INDIAN CONTRACT ACT, 1872

ANALYSIS

Caselaw1

Now in the given case study the landmark case of Morvi Mercantile Bank
Ltd. Union of India will be applied.
In the above mentioned case-

MORVI MERCANTILE BANK V. UNION OF INDIA

FACTS
Certain goods were consigned with the Railways to “self” from Bombay for
transit to Okhla. The consigner endorsed the railway receipts to the
appellant bank against an advance of Rs 20,000. The goods having been
lost in transit, the bank as an endorsee of the railway receipts and
pledgee of the goods sued the Railways for the loss of the goods which
were worth Rs 35,500. The trial court rejected the action. The Bombay
High Court allowed recovery up to Rs 20,000 only. There were
crossappeals against this decision.

ISSUE
 Whether an endorsement of a railway receipt constituted a pledge?
 Whether the Bank was the pledgee of the goods or it was just the
pledgee of the documents of title? 
 Whether the Bank as pledgee of goods could sue the railway
company for the entire amount of the consignment?
HELD
In the Supreme Court, the bench by a 3:2 majority held that;
 The Railway Receipts as documents of title could be validly pledged
under the Indian Contract Act, 1872.
 Under section 180 of the Contract Act, a pledgee being a bailor of
goods had the same remedies as the owner of goods as regards the
third persons. Thus the bank was allowed to recover damages for
the full value of the consignments.
 Because the railway receipts were endorsed to the Bank for the loan
advanced by it, the court held that the Bank would be in control of
the goods till the debt was discharged. Thus it was a pledgee
towards the entire goods and not towards the documents of title
only.

In the case study given in the question Mr. A has entered into a contract
with Mr. B of Delhi to supply certain building materials worth Rs. 5 lakh
through railways. A railway receipts was handed over to the consigner,
i.e. Mr A worth Rs 5 Lakh. Now due to the negligence of the Railway co.
the goods got lost in transit. On defaulting the payment of Rs 2 Lakh to
ABC ltd Bank, the bank (endorsee of the railway receipt) sued the
railways for the loss of Rs 5 lakh.

In the following case a valid pledge has occurred between Mr A and the
bank. ABC Ltd Bank is entitled to sue the railways for the loss of Rs 5
Lakh as railway receipt is equivalent to goods for the purpose of
constituting delivery of goods.
The delivery of railway receipt constitutes as the same thing as delivery of
goods making the pledge valid and he pledgee i.e. the bank entitled to
the amount of loss. Since the delivery of documents of title which would
enable the pledgee to obtain possession it is equally effective to create a
pledge.

CONCLUSION

Thus in the following case study according to Section 172 of the Indian
Contract Act and applying the Landmark case of Morvi Mercantile Bank
Ltd. Union of India there is a valid pledge between Mr A and the Bank and
further the ABC Ltd Bank is entitled to sue the railways for the loss worth
Rs 5 lakh.

Q 2.

INTRODUCTION

The question is based on the landmark judgement of “ Summan Singh v.

N.C. Bank of New York”

Under Indian contract act, 1872 Section 191,192 and 193 deal the
definition of sub agents and their liability/responsibility to the principal as
well as the agent:

191. “Sub-agent” defined.—A “sub-agent” is a person employed by,

and acting under the control of, the original agent in the business of the
agency.

192. Representation of principal by sub-agent properly appointed.

—Where a sub-agent is properly appointed, the principal is, so far as
regards third persons, represented by the sub-agent, and is bound by and
responsible for his acts, as if he were an agent originally appointed by the
principal.

Agent’s responsibility for sub-agent.—The agent is responsible to the

principal for the acts of the sub-agent.

Sub-agent’s responsibility.—The sub-agent is responsible for his acts to

the agent, but not tothe principal, except in cases of fraud or wilful
wrong.

193. Agent’s responsibility for sub-agent appointed without

authority.—Where an agent, without having authority to do so, has
appointed a person to act as a sub-agent, the agent stands towards such
person in the relation of a principal to an agent, and is responsible for his
acts both to the principal and to third persons; the principal is not
represented, by or responsible for the acts of the person so employed,
nor is that person responsible to the principal.

The reading and intentions of section 192 deem that when a subagent is
appointed, the relationship that is constituted between the principal and
the subagent and the agent depends upon whether the subagent has
been properly or improperly appointed.

1. Proper delegation– This comes under section 192 of the Indian

Contract Act, 1872. This is when an agent having the authority to
do so, appoints a sub-agent.
2. Improper delegation– This comes under section193 of the Indian
Contract Act, 1872. This is when an agent without any authority
appoints a sub-agent.

ISSUE

A. Who amongst Mr.A, Mr.B and Mr.C is liable for the loss of goods in
transit?

RULES

SECTION 191,192 AND 193 OF INDIAN CONTRACT ACT, 1872

ANALYSIS

In the above question Mr. A has appointed C to carry on the task that was
assigned by B who is the principal.
The Latin maxim being used here in the above question is Delegatus non
potest delegare which means that in most cases, an agent cannot
delegate a task that has been delegated to him. The principle is founded
on the idea that when a principal selects an agent, he is putting his trust
and confidence in the agent's work, whereas he might not have the same
faith in the work of another.
It was laid down in John McCain and Co v Pow that An estate agent has
no right to appoint a sub agent and delegate to him his powers that need
particular skill and care unless the principal authorizes it. There was no
way to claim implicit authority. In this scenario, the sub agent sold the
property on his own behalf. The agent had filed a lawsuit to recover his
commission. The court dismissed the claim because the agency contract
prohibited the hiring of a subagent.
There are few exceptions to the rule wherein the agent may delegate his
work to another:
a. Nature of the work
b. Trade custom
c. Principal’s consent

1. Nature of the work- sometimes it becomes necessary to appoint a

sub agent seeing the nature of the work. For example, an agent
tasked with selling an estate may hire an auctioneer, and a person
tasked with filing a lawsuit may hire a lawyer.

2. Trade customs- If there is an established trade practice to that

effect, a sub agent may be appointed and the work delegated to
him.

3. Principal’s consent- the principal can both expressly and impliedly

allow to appoint a sub agent.

Caselaw1

In the landmark case of  Summan Singh v. N.C. Bank of New York

A sub-agent failed to insure the principal's goods, which were destroyed

by fire. But the principal could not recover against the sub-agent.
Similarly, in Summan Singh v N.C. Bank of New York
The plaintiff in a foreign country appointed the N.C. Bank to deliver a sum
of money to one Pritam Singh of Jullundur, whose address was given. The
bank instructed its Bombay branch accordingly. The Bombay branch
appointed the Punjab National Bank which delivered the money to a
wrong person. The plaintiff's action against either bank failed. The Punjab
National Bank was held not liable on the principle that a sub-agent is not
liable to the principal except when he is guilty of fraud or wilful wrong.
The wrong delivery was due only to negligence. The N.C. Bank had
exempted itself from the consequences of wrong delivery.
A sub-agent is, however, bound by all the duties of an ordinary agent. His
rights cannot go beyond those of the main agent and they have to be
exercised through the agent except where direct action would be
necessary to give business efficacy to the appointment of a sub-agent.
Hence, here the Plaintiff's action failed against either bank. Punjab
national bank was not liable on the principle that a sub-agent is not liable
to the principal except when he is found guilty of fraud or wilful wrong.
The wrong delivery was due to only negligence. The NC Bank exempted
itself from the consequence of the wrong delivery.
Even if the sub agent is improperly appointed there arises, Sub agent’s
liability to third person-

Caselaw 2
As was seen in the case of CALICO PRINTERS’ ASSN V BARCLAYS BANK.
In this case the goods of the principal were lost by fire because a sub
agent neglected to insure them. The principal, on the other hand, was
unable to recuperate against the sub agent.
It was in this case where the effect of improper delegation, there is no
privity of contract between him and the principal, who is can hold the
agent responsible for any breach of the mandate he has received and
cannot in general bring a negligence or breach of duty claim against the
sub agent.

Now in the given hypothetical question

1. Mr. A, a carrier, had agreed to carry 1000 boxes of sweet and

savouries from Noida to Gurugram via a truck.
2. He further asked Mr. C , another carrier to carry the boxes and the
goods got damaged in the transit.
3. The owner of the goods, Mr.B sued Mr. A for the loss in transit and
Mr.A contends that goods were carried by Mr.C and thus he was not be
held liable for the losses.

CONCLUSION

Thus, in the above case the present case, Mr. A will remain liable and the
exceptions to the duty not to delegate are not applicable. Hence, the
liability of goods damaged lies with Mr.

Q3

INTRODUCTION

The Sale of Goods Act, 1930 incorporates the maxim of Caveat Emptor
stresses on the importance of the purchaser being aware that he is
purchasing the rights of another and therefore must exercise reasonable
care and discretion to make himself acquainted with the qualities and
defects of the goods which he contemplated buying. Section 16 of the
Sale of Goods Act states that the seller provides no implied warranty or
condition for the fitness or quality for any goods supplied under a contract
of sale. In the case of Ward v Hobbes, the House of Lords held that
although deliberate concealment of material defects can be construed as
fraud however the vendor is not bound to disclose every defect in the
goods supplied and the buyer must exercise caution before purchasing
such goods. This principle was reaffirmed by the English case of Burnby v
Bollett which stated that no warranty of soundness was implied by law
between the vendor and the vendee.

However exceptions to the principle of Caveat Emptor are enumerated in

the subsections of Section 16 of the Sale of Goods Act, 1930. The
exceptions were inculcated by law due to the exponential growth of trade
and globalization of sale which necessitated the constraints on seller by
preventing them from abusing their freedom and selling sub-standard
goods and escaping liabilities under the garb of exclusion clauses. One of
the major exceptions is that when the buyer did not have an opportunity
to examine the goods beforehand or is unaware of the qualities of the
good, the seller is bound to sell goods of merchantable quality fit for the
warranted purpose.

ANALYSIS

In the given case Mr. N, had purchased a television set from the
shopkeeper, Mr. A. in good faith. However the product turned out to be
defective and was not of merchantable quality. In spite of repairing it a
few times it was not fit for the ordinary purpose for which it was bought
Rule

Under Section 16 (1) of the Sale of Good Act, that when the goods are of
a description which is in the course of the seller’s business to supply,
there is an implied condition that a seller must provide goods reasonably
fit for the purpose for which they had been bought. However the buyer
must expressly or implicitly inform the seller of the particular purpose for
which the goods are required and the seller knows that the buyer has
relied on his skill and judgment.

The three essentials

(a) the buyer relying on the seller’s skill or judgment
(b) the goods are of a description which is in the course of the seller’s
business to supply and
(c) the buyer informing the seller of the particular purpose for which the
goods are required are implicitly satisfied during the purchase of a
commodity.

Section 16(2) states that the seller must provide goods of merchantable
quality when the goods are purchased on the basis of description. The
meaning of the term description can be construed to refer to a situation in
which the buyer has never seen the goods and has agreed to buy the
same on the basis of the description provided by the seller as in the case
of Varley v Whipp. When the buyer has seen the goods but relies on
stated description which is in deviation with the appearance of the goods,
the sale of such goods can come under the head of sale by description.
Lastly packing of goods can also be held to be a part of the description.
The concept of ‘merchantable quality’ refers to the condition that if the
goods are purchased for resale then they must be capable of passing the
market under the description. However ‘Merchantable quality’ does not
only mean marketability but also mandates that the goods can be put to
the ordinary purposes for which it was designed, intended and sold.
Application
In the case of Grant v Australian Knitting Mills, the House of Lords held
that it when the buyer acts in good faith and relies on the seller’s skill or
judgment there was an implied condition of fitness for the buyer’s
purpose. Mr N. had purchased the television set from Mr. M. in good faith
and thereby relying on the judgment of the shopkeeper. The purpose of
buying the television is known to Mr. M and since he deals in the
particular goods sold by him i.e. the television set, it is implied that when
the buyer has purchased the goods from him in the confidence that Mr. M.
has selected the stock exercising discretion expected from a reasonable
buyer. Although it is pertinent for the buyer to acquaint the seller with
the non-normal purpose of using of a particular good, the television set
supplied by Mr. M. is unsuitable for even the ordinary use and therefore
the liability of the shopkeeper arises.

Similarly under Section 16(2) the good sold by Mr. M. is not of

merchantable quality as it cannot be used for the purpose it designed,
intended and sold. The cases of Jones v Just and Gardener v Gray
reaffirm the principle entitling the buyer Mr. N to reject the goods and sue
for the recovery of the price. Therefore Mr. M can be held liable for
breaking the implied conditions under Section 16(1) and Section 16(2) of
the Sale of Goods Act. Under Section 59 of the Sale of Goods Act,1930
when there is a breach of warranty by the seller the buyer may elect to
treat the breach of warranty as a ground for initiate a suit against the
seller claiming the breach of warranty in diminution or extinction of the
price and if the losses suffered by him is more than the price he may file
a suit for damages for the breach of warranty. The buyer has no
alternative other than to sue for damages if he has already paid the price
as the goods cannot be rejected. This principle was reaffirmed by the case
of Mason v Burnigham. The damages are to be assessed as in the case of
torts and the compensation must be proportionate to the injury caused.
The seller is responsible for the direct and natural consequences of his
Act.
According to Section 61 of the Sale of Goods Act, 1930 Mr M. is also
entitled to recover special damages or claim for recovery of money paid
as price when the consideration for the payment of price has failed.

CONCLUSION
Thus, Mr. N. can either file a suit for damages for the breach of warranty
or file a claim for the recovery of the price paid by him under the
aforementioned Sections. The goods once bought from Mr. M. cannot be
rejected. The concept of Caveat Emptor is checked by the exceptions
created by law to ensure that the buyer is not made a victim due to the
seller’s abuse of freedoms granted by law and therefore Mr. M. is liable
for the goods he has supplied.