UNIT 3

UNIT 3
Contract of Indemnity & Guarantee, Essential elements of
Indemnity and Guarantee.
Rights of Surety – Discharge of Surety. Bailment & Pledge –
Rights & Duties of Bailor &
Bailee – Rights and Liabilities of Finder of Lost Goods.
 Contract of Indemnity

➤ Secs124: A contract by which one party promises to save the

other from loss caused to him by the conduct of the promisor
himself, or by the conduct of any other person, is called a
contract of indemnity.
➤ The person who promises to make good the loss is called the
Indemnifier(promisor)
➤ The person whose loss is to be made good is called the
indemnified or the Indemnity-holder (promisee)
➤ A contract of indemnity is a contingent contract.
➤ A contract of indemnity may be expressed or implied.
➤ A — on instruction of T sold cattle belonging to O. O held A liable. A can recover from T
➤ It must have all the essentials elements of a valid contract.

Rights of indemnity-holder when sued(recover from promisor/indemnifier)

1. All damages which he may be compelled to pay in any suit in respect of any matter to
which the promise to indemnify applies.
2. All costs which he may be compelled to pay in any such suit if, in bringing or
defending it, he did not contravene the orders of the promisor, and acted as it would
have been prudent for him to act in the absence of any contract of indemnity, or if the
promisor authorised him to bring or defend the suit;
3. All sums which he may have paid under the terms of any compromise of any such
suit, if the compromise was not contrary to the orders of the promisor, and was one
which it would have been prudent for the promisee to make in the absence of any
contract of indemnity, or if the promisor authorised him to compromise the suit.
Rights of indemnifier: Act silent. Rights of Surety
CONTRACT OF GUARANTEE

➤ A “contract of guarantee” is a contract to perform the

promise, or discharge the liability, of a third person in case of
his default.
➤ A guarantee may be either oral or written. [section 126].
 PARTIES TO CONTRACT OF GUARANTEE

➤ SURETY: The person who gives the guarantee is called the “surety”. Person
giving guarantee is also called as guarantor‟. ;
➤ PRINCIPAL DEBTOR: the person in respect of whose default the guarantee
is given is called the “principal debtor”, and
➤ CREDITOR: the person to whom the guarantee is given is called the
“creditor”.
➤ Three parties are involved in contract of guarantee. Contract between any
two of them is not a contract of guarantee‟. It may be contract of indemnity.
➤ Primary liability is of the principal debtor. Liability of surety is secondary
and arises when Principal Debtor fails to fulfil his commitments. However,
this is so when surety gives guarantee at the request of principal debtor. If
the surety gives guarantee on his own, then it will be contract of indemnity.
In such case, surety has all primary liability.
ESSENTIALS OF CONTRACT OF GUARANTEE:
➤ Existence of a principal debt.

➤ Consideration for a contract of guarantee.

➤ There should be no misrepresentation or concealment.

➤ Contract of guarantee must contain all the essential elements of

valid contract.

➤ Contract of guarantee is a complete and separate contract by itself.

DISTINGUISH BETWEEN CONTRACT OF INDEMNITY AND CONTRACT OF GUARANTEE.

➤ x
BASIS OF CONTRACT OF
CONTRACT OF GUARANTEE
DISTINCTION INDEMNITY

There are two parties in a

There are three parties in a contract of
contract of indemnity,
Parties guarantee, namely the principal debtor, the
namely the indemnifier and
creditor, and the surety.
the indemnity holder.

It consists of three contracts-A contract

between principal debtor and creditor wherein
It consists of only one the debtor promises to perform his obligation/
contract between the make payment. The contract between surety
indemnifier and the and creditor wherein the surety promises to
indemnity holder. The perform the aforesaid obligation/make the
No. of contracts
indemnifier promises to payment if the principal debtor makes a
indemnify the indemnified/ default. An implied contract between the
indemnity holder in event of surety and the principal debtor. The principal
a certain loss. debtor bounds himself to indemnify the surety
for the sum that he has paid under the
guarantee undertaken by him.
 The liability of the surety is a secondary one,
i.e., his obligation to pay arises only when the
The liability of the
principal debtor defaults. Liability in a
indemnifier is primary. The
contract of guarantee is continuing in the
3. Nature of liability in a contract of
sense that once the guarantee has been acted
liability indemnity is contingent in
upon, the liability of the surety automatically
the sense that it may or
arises. However, the said liability remains in
may not arise.
suspended animation until the debtor makes
default.

The liability of an
indemnifier is not
conditional on the default
of somebody else. For
Liability of surety is conditional on the default
example, Mrinal promises
of the principal debtor. For example, Anil buys
the shopkeeper to pay, by
Default of third goods from a seller and Mrinal tells the seller
telling him that, “Let Anil
person that if Anil doesn’t pay you, I will. This is a
have the goods, I will be
contract of guarantee. Thus, the liability of
your paymaster”. This is a
Mrinal is conditional on non-payment by Anil.
contract of indemnity as
the promise to pay by
Mrinal is not conditional on
default by Anil.
 No requirement of the Principal debt is necessary. (refer to the
Principal debt
principal debt. previous example)

Once the indemnifier

Whether After the surety has made the payment, he
indemnifies the indemnity
subsequent steps into the shoes of the creditor and can
holder, he cannot recover
recovery is recover the sums paid by him from the
that amount from anybody
possible principal debtor.
else.

Whether a
contract has to In India, contracts of
In India, a contract of guarantee may be
be in writing or indemnity may be either
either oral or written.
can be oral as oral or written.
well
EXTENT OF SURETY’S LIABILITY
➤ 1.Co-extensive: Section 128 of Indian Contract Act deals
with the nature of the liability of the surety. According to this
section, “the liability of surety is coextensive with that of the
principal debtor, unless it is otherwise provided by the
contract.” The expression ‘co-extensive shows the maximum
extent of surety’s liability. Surety is liable for the whole of the
amount for which the principal debtor is liable. So, in extent,
surety’s liability is at par with principal debtor’s liability. It is
neither more nor less.
➤ Eg: P does not pay. S is liable to pay bill amount + int+any
other charges
➤ 2.Surety’s right to limit his liability: Although the liability of the
surety is co-extensive with that of the principal debtor, he may limit
his liability. He may expressly declare his guarantee to be limited to a
fixed amount. In other words, the liability of a surety can be made less
by a special contract but his liability cannot be made greater than that
of the principal debtor.
➤ 3. Surety’s liability arises immediately on default of the principal
debtor: Surety’s liability is secondary and not primary. The surety’s
liability arises immediately on default by the principal debtor. He
cannot be called upon to pay unless the principal debtor has
committed the default. But in case of default by the principal debtor
the creditor is not required to give a notice of default to the surety.
Creditor is not bound to proceed first against the principal debtor
before suing the surety unless the contract so provides.
LIMITATION OF SURETY’S LIABILITY
➤ He can limit his liability
➤ Eg: C gave P 5000. S guarantee only 4000.

➤ Surety’s liability where the original contract between

creditor and principal debtor is void or voidable: The
contract between the surety and the creditor is an independent
contract. Thus, where the original contract between the
creditor and the principal debtor is void the surety will be
liable as if he is the principal debtor. Similarly, where the
contract between the creditor and the principal debtor is
voidable, the surety may not be discharged from liability.
KINDS OF GUARANTEE

!  1.RETROSPECTIVE GUARANTEE (Given for existing debt) 


!  2. PROSPECTIVE GUARANTEE (Given for future debt) 


!  3. LIMITED GUARANTEE (For a single transaction) 


!  4. UNLIMITED GUARANTEE (Unlimited as to time or amount) 


!  5. SPECIAL GUARANTEE (For acceptance by the particular person) 


!  6. CONTINUING GUARANTEE (Extends to series of transactions)

➤ Continuing Guarantee:
➤ As per section 129, a guarantee which extends to a series of transactions
is called a continuing guarantee.

1. A, in consideration that B will employ C for the collection of rents of B's

zamindari, promises B to be responsible to the amount of 5000/- for due collection
and payment by C of those rents. This is a continuing guarantee.
2. A guarantees payment to B, a tea-dealer, for any tea that C may buy from him
from time to time to the amount of Rs 100. Afterwards, B supplies C tea for the
amount of 200/- and C fails to pay. A's guarantee is a continuing guarantee and so A
is liable for Rs 100.
Revocation of Continuing Guarantee: As per section 130,
1. A continuing guarantee can be revoked at any time by the surety by notice to the
creditor.
Death of Surety
By other modes
RIGHTS OF SURETY
➤ The creditor
➤ The principal debtor
➤ The co-surity
RIGHTS OF THE SURETY AGAINST CREDITOR
➤ On payment of the guaranteed debt: Surety has a right over the security
which the creditor has in his possession at the time when the contract of
guarantee was constructed. It doesn’t matter whether surety was aware of the
security or not. The creditor, if without the consent of the surety gets rid of
the security, the surety’s obligation is reduced to the extent of the value of the
security disposed of.
➤ Right of set-off: If the creditor owes anything to the principal debtor, the
amount owed can be adjusted in the creditor’s claim against the surety. The
surety can charge from the amount to be given to the creditor if the creditor
has to pay the principal debtor back.
➤ Before payment of the guaranteed debt: Creditor to sue the P. S has to pay
all expenses
➤ Right of equity:
➤ Right of Subrogation
RIGHTS OF SURETY AGAINST PRINCIPAL DEBTOR
➤ Right to be relieved of liability
➤ Right to indemnity
RIGHT AGAINST CO-SURETIES
➤ Right of contribution
➤ Co-sureties liable to Contribute equally
➤ Liability of co-sureties bound in different sums
➤ Release of a co-surety
  In the following circumstances surety is discharged from his Liability.
BY REVOCATION
➤ Novation (Section 62)
➤ Revocation of guarantee by giving notice (Section 130)
➤ Death of Surety(Section 131).
DISCHARGE BY THE CONDUCT OF THE CREDITOR
➤ Variance in terms of the contract (Section 133);
➤ Release or discharge of the principal debtor (Section 134);
➤ Compounding by Creditor with the principal debtor (Section
135);
➤ Creditors act/omission impairing surety’s eventual remedy
(Section 139);
➤ Loss of security (Section 141).
DISCHARGE BY THE INVALIDATION OF THE CONTRACT
➤ Guarantee obtained by misrepresentation (Section 142)
➤ Guarantee obtained by concealment (Section 143)
➤ Failure of a co-surety to join a surety (Section 144).
➤ Failure of consideration
BAILMENT & PLEDGE –
➤ The word ‘bailment’, is derived from ‘bailler’, a french word
which means ‘to deliver’.
➤ Bailment has been defined under the Section 148 of the
Indian Contract Act, 1872, according to which Bailment
involves the delivery of goods from one person to another for
a specific purpose and upon a contract, when the purpose is
fulfilled, the good has to be returned or disposed of according
to (or dealt with on) the direction of the person who has
delivered the goods. 
➤ Eg: A delivered a piece of goods to B, a tailor, to be stitched
into a suit. There is a contract of bailment between A & B.
➤ There are generally two parties to the contract of Bailment.
➤ The person who is the owner and delivers the good is called
‘bailor’
➤ The person to whom the goods are delivered is called ‘bailee’.
➤ Bailment is a type of a special contract, so all essential
elements of a valid contract like consent, competency, etc are
required for it to be valid.
➤ But, a valid bailment can arise even without a valid contract
between the two parties, for example, a lost good finder
becomes a bailee and has the responsibility to return it to its
owner, the bailor, even if no contract exists between them.
 How is Bailment different from the sale of the good?
➤ Sales involve the transfer of the ownership of the good in
exchange for something of value while on the other hand,
Bailment involves the transfer of the possession of the good,
not the ownership. 
What goods can be bailed?
➤ Only the goods that are of movable nature can be bailed.
However, current money or legal tender cannot be bailed
and deposition of money will not be counted as bailment as
money is not goods and the same money will not be
delivered back to the client.
REQUISITES OF BAILMENT / ESSENTIAL FEATURES 
1. Contract: Expressed or implied, or implied by law.(finder of goods and
the owner)
2.Delivery of possession: Delivery of possession of the goods by the
bailor to the bailee to fulfil the purpose of bailment. Possession refers to
exercising control over the good and excluding any other person to do
the same. Eg: Goldsmith
3.For some purpose: There must be a purpose for which the delivery of
the goods takes place. If the goods are delivered by mistake, there is no
bailment.
4.Return of specific goods: moveable goods-, it is necessary for the bailee
to follow the instruction given by the bailor for the purpose of the
return of the good if any. 
5.Other examples read from text
CLASSIFICATION OF BAILMENT
On the basis of Remuneration

Gratuitous Bailment
When a bailment is made without any consideration of benefit
to the bailor or to the bailee, it is referred to as gratuitous
bailment. In simple terms, it is a bailment without any
consideration.
For example, when one lends a book to a friend free of cost.

Non-Gratuitous Bailment
When generally there is a consideration for bailment between
the bailor and the bailee then it is referred to as non-
gratuitous bailment.
For example, when someone gets a book issued from a library
in exchange for a fee.
ON THE BASIS OF BENEFITS TO THE PARTIES
➤ For the exclusive benefit of the bailor: In this case, the
bailor delivers his/her good to the bailee for safe custody.
There is no benefit/benefit for the bailee. For example, leaving
a pet with a neighbour when going out.
➤ For the exclusive benefit of the bailee: In this case, the
bailor delivers a good for the benefit of the bailee. For
example, a friend borrowing our car for a week.
➤ For the mutual benefit of them both: In this case, the bailor
deliver his good to the bailee for consideration and both the
parties get benefit out of bailment, For example, giving a bike
for repair to a mechanic, for which the mechanic gets paid.
DUTIES OF BAILOR
1. To Disclose known faults: It does not matter whether the goods are gratuitously
or non-gratuitously bailed, the bailor has a duty to disclose all the known faults about
that good that is being bailed to the bailee. Failing to do so would make the bailor
liable to indemnify the bailee for all the damages caused to him directly from this
fault. However, it is important to note that in the case of non-gratuitous bailment, the
bailor is responsible even for those faults from which he/she is not aware. 
➤ Examples: 
➤ A lends his bike to B. A is aware of the fact that the bike’s brakes are not working
properly and fails to inform the same to B. B met with an accident and is severely
injured. A is liable to pay B for the damages sustained.
➤ Raj hires a racing car from Shyam to participate in a racing competition. During the
race, the car caught fire. Raj was unable to extinguish it as the fire-fighting equipment
was out of order, due to which he sustained injuries. Therefore, Shyam is responsible
to pay Raj even if he was not aware of the fact that fire-fighting equipment was out of
order.
➤ 2. To bear extraordinary expenses of bailment: Bailee bound
to bear ordinary expenses. Bailor- extraordinary expenses
➤ 3. Duty to indemnify the bailee for loss in case of premature
termination of gratuitous bailment
➤ 4. To receive back the goods
➤ 5. To indemnify the bailee
DUTIES OF BAILEE
➤ 1. To Take reasonable care of goods bailed:
➤ According to section 151, it is the duty of a bailee to take care of goods
bailed to him. Bailee should take care of these goods as an ordinary
man will take care of his goods of the same value, quality, and quantity.
➤ Thus, if the bailee takes due care of goods then he will not be liable for
any loss, deterioration of such goods. Also, the bailee needs to take the
same degree of care of goods whether the bailment is for reward or
gratuitous.
➤ The onus of proof is on the bailee to show that there has been no
negligence.
➤ However, the bailee is not liable for any loss due to the happening of
any act by God or public enemies though he agrees to take special care
of the goods
➤ 2. Not to make any unauthorised use of goods:
➤ As per section 153, the Bailee shall not make any
unauthorised use of goods bailed. In case he makes any
unauthorised use, then bailor can terminate the bailment.
➤ Bailor can also claim for damages caused to goods bailed due
to unauthorised use as per Section 154.
➤ 3. Not to mix the goods bailed with his own goods:
➤ The bailee needs to keep the goods separately from his own
goods. He should not mix the goods under bailment with his
own goods. In case bailee mixes the goods with his own goods
without the consent of the bailor, then:
➤ Bailor also has an interest in the mixture.
➤ If the goods can be separated or divided, the property in the
goods remains with both the parties. But, the bailee bears the
expenses of separation or any damages arising from the
mixture.
➤ If it is not possible to separate the goods, the bailee shall
compensate the bailor for the loss of goods.
4. Not set adverse title
A bailee must not set an adverse title to the goods bailed.
5. Return Goods
The duty of the bailee is to return the goods without demand on the
accomplishment of the purpose or the expiration of the time period.
In case of his failure to do so, he shall be liable for the loss,
destruction, deterioration, damages or destruction of goods even
without negligence.
6. Return increase or profits
A bailee shall return the goods along with any increase or profit
accruing to the goods to the bailor, in the absence of any contract to
the contrary.
For example, A leaves a hen in the custody of B. The hen gets a
chick. B shall deliver the hen along with the chick to A.
RIGHTS OF BAILOR
1.Enforcement of rights
2.Avoidance of contract
3.Return of goods lent gratuitously
4.Compensation from a wrong-doer
RIGHTS OF BAILEE
The duties of the bailor are the rights of the bailee. In addition
1. Delivery of goods to one of the several joint bailors of goods
2.Delivery of goods to bailor without title
3.Right to apply to court to stop delivery
4.Right of action against trespassers
5.Bailee’s lien
LAWS RELATING TO LIEN
➤ a right to keep possession of property belonging to another
person until a debt owed by that person is discharged.
➤ a legal claim or legal right which is made against the
assets that are held as collaterals for satisfying a debt. A
lien can be established by a creditor or a legal judgement. The
purpose of the lien is to guarantee an underlying obligation
such as the repayment of the loan
➤ Possession is essential for exercising the right of lien.
PARTICULAR LIEN
➤ A lien upon specific property as security for the payment of a
debt or the satisfaction of some other obligation arising out of
a transaction or agreement involving that property. — called
also specific lien.
GENERAL LIEN
➤ A general lien is the right of one person to retain any property
or goods which are in his possession belonging to another
person until the promise or liability is discharged. It is a right
to retain the property belonging to another for a general
balance of the account.
➤ A, has two accounts in a bank. In the savings bank
account, he has a credit balance of $500. In the current
account, the lie has an overdraft of $1,000. The bank can
exercise the right of lien on the savings account for the
amount due on the current account.
➤ A general lien is available to bankers, factors, attorneys of the
High Court, and policy brokers.
BASIS FOR
GENERAL LIEN PARTICULAR LIEN
COMPARISON

Meaning General lien alludes to the right to Particular lien implies a right of the
keep possession of goods bailee to retain specific goods
belonging to other against general bailed for non-payment of amount.
balance of account.

Availability Any goods, in respect of which the Only against the goods, in which
amount is due to another person. skill and labor is exercised.

Automatic No Yes

Right to sale goods No right to sale the goods. In general, there is no right to sell
goods, however, the right can be
conferred to bailee in special
circumstances.

Exercised by Bankers, Wharfngers, factors, policy Bailee, pledgee, finder of goods,

brokers, attorneys etc. agent, partner, unpaid seller etc.
FINDER OF GOODS
➤ Rights of finder of goods
1. Right of lien:According to Section 168 of the Indian
Contract Act, the finder of the goods has no right to sue the
owner of the goods for compensation for the trouble and
expenses that have been incurred by him voluntarily.
However, he has the right to retain the goods unless the
compensation is paid to him.
For example, If A the finder of goods belonging to B has
incurred expenses for preserving the gold chain of B, then B
can not sue B for the compensation but can only retain the
goods unless such an amount is paid to A by B.
➤ 2. May sue for a specific reward:
Under section 168 of the Indian Contract Act, the finder of goods
can sue the owner of the goods if he has offered a specific reward
for the return of the goods lost. He also has the right to retain the
goods unless he receives the reward offered.
Thus, if a reward is offered by the owner then the finder has both
the rights (i) right of lien (ii) right to sue.Thus, If A found a
wallet belonging to B. B advertises that he will pay a sum of
₹1,000 to a person whosoever finds the wallet and return it.
Here, if B denies paying the rewarded sum then A has two options
with him (i) He has the right to sue B for the reward offered and,
(ii) He has the right to retain the wallet unless B pays the reward.
➤ 3. When finder of thing commonly on sale may sell it:
➤ According to Section 169 of the Indian Contract Act, if the
finder of goods is unable to find the true owner after due
diligence or if the owner refuses to pay the lawful charges to
the finder then he may sell the goods if:
➤ The thing is perishable or is such of nature that it will lose
the greater part of its value.
➤ When lawful charges of the finder amount to two-thirds of
the value of goods.
Duties of Finder of Goods
Duties of the finder of goods are the same as of the bailee.
The duties are discussed in detail below:
1. Duty to take reasonable care: Section 151 of the Indian
Contract Act lays down that the bailee is required to take
reasonable care of the goods as he would have taken the care
of goods under similar circumstances. Thus, the finder of
goods is required to take reasonable care of goods as he would
have taken of his goods.
Section 152 of the Act lays down that if there was not a
special contract to the contrary then the bailee can not be
made liable for the loss, destruction or deterioration of the
goods provided that he has taken the due care of the goods.
➤ 2. Duty not to make unauthorised use:
➤ According to Section 154 of the Indian Contract Act states that if a person makes the
unauthorised use of goods then he will be liable to make compensation to the bailor
for any damage caused to the goods. Thus, any unauthorised use of the goods will
make the bailee absolutely liable
➤ 3. Duty not to mix
➤ The finder of goods is bound not to mix the goods with his goods. If the goods are
mixed with the consent of the owner then both the owner and the finder will have a
proportional share in the mixture thus produced.[2] If the goods mixed are of such a
nature that they can be separated from the goods of the finder then the finder of goods
will be liable to pay any such amount which is incurred for the separation of goods.[3]
However, if the goods mixed are of such a nature that they can not be separated from
the goods of the finder then the finder of the goods is required to compensate the
owner of the goods for the loss of goods.[4]
➤ 4. Duty to Return the goods
➤ The finder of the goods has to return the goods to the owner of the goods.[5] He is
bound to return the goods but can exercise his right of lien if he is not paid the lawful
charges.
➤ 5. Duty to return the increase:
➤ The finder of goods is bound to return any profit or
increase from the goods to the owner of the goods
PLEDGE
PLEDGE
➤ As per section 172 of the Indian Contract Act, 1872, a Pledge
is a contract where a person deposits an article or good with a
lender of money as security for the repayment of a loan or
performance of a promise.
➤ Pledge is also known as a pawn.The depositor or the bailor is
the Pawnor and the bailee or the depositee is the Pawnee.
➤ The Pawnee is under the duty to take reasonable care of the
goods pledged with him. Let us learn about the Rights of
Pawnee and Pawnor.
DIFFERENCE BETWEEN PLEDGE AND BAILMENT
➤ The following are the major differences between Bailment and
Pledge:
1. A Bailment is a contract in which goods are transferred from one party to
another party for a short period for a specific objective. The Pledge is a kind of
Bailment in which goods are pledged as security against payment of debt.
2. A Bailment is defined under section 148 while Pledge is defined under section
172 of the Indian Contract Act, 1872.
3. In bailment, the consideration may or may not be present, but in the case of a
pledge, the consideration is always present.
4. The objective of bailment is safe custody or repairing of goods delivered. On
the other hand, the sole purpose of delivering the goods is to act as security
against the debt.
5. The receiver has no right to sell the goods in case of bailment whereas if the
Pawnor does not redeem the goods within a reasonable time, the Pawnee can
sell the goods after giving notice to him.
6. In bailment, the goods are used by the Bailee only for the said purpose.
Conversely, in pledge, the Pawnee has no right to use the goods.
➤ Read and understand the rights and duties of pawnor and
pawnee
PLEDGE BY NON-OWNERS
➤ 1.Mercantile agent (sec 178) – A mercantile agent is an agent having
the right to buy/sell goods on behalf of his Principal and can consign
goods for the purpose of sale or raise money on the security of goods.
Such agent with the consent of principle can make a valid pledge.
➤ 2.A person in possession under voidable contract (Sec 178 A) –
 Person having possession under voidable contract can make a valid
contract of pledge of goods, provided that the contract has not been
cancelled at the time of pledge and the pledge has acted in good faith
and without knowledge of pledger’s defective title.
➤ example- where A purchase a watch from B, under coercion and pawns
it with C before the contract is cancelled by B. the pledge is valid. C
will get a good title to the watch and B can only claim damages from A
➤ 3. Pledger having Limited interest (sec. 179) – where a person pledges
goods in which he has limited interest, the pledge is valid to the extent of
his interest. thus, a person having a lien over goods can pledge it upto the
extent of his interest.
➤ example – A goes to B( a tailor) to get his cloth sewed for a charge of 2000.
in the course when the suit was ready, B needed urgent cash and pledged
the suit to C for rs. 3000. Pledge is valid to the extent of B’s interest i.e.
1500. here A can directly recover his suit from C by giving him 1500.
➤ 4.Seller in possession of goods after sale ( sec 30(1) of sale of goods
act)– A seller, left in possession of goods sold, is no more owner of the
goods, but a pledge created by him is valid, provided the Pawnee has acted
in good faith and has no knowledge of sale of goods to the real owner. in
this case, the original buyer can obtain damages from the seller but cannot
recover the goods from pledgee.
➤ 5. Co-owner in possession – where there are two or more than two co-
owners in possession of goods anyone of them can make a valid pledge after
taking consent of co-owners.