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CMA Foundation · Fundamentals of Business Laws and Business Communication · Sale of Goods Act, 1930

Dev sold goods to Nisha but retained the goods' documents of title because the price was unpaid. He later pledged the documents to a bank, Sunrise Bank, which received them in good faith and without notice of the earlier sale. Which statement is correct about the bank's position under the Act?

The pledge is effective as if the owner had authorised it. The rule on a seller remaining in possession extends to pledges and other dispositions of goods or documents of title, protecting a transferee who takes in good faith and without notice of the earlier sale.

  1. AThe pledge has the same effect as if Dev were expressly authorised by the owner to make itCorrect
  2. BThe pledge is invalid because Dev had ceased to be the owner
  3. CThe pledge is valid only if Nisha ratifies it
  4. DThe bank gets rights only if it is a mercantile agent

Explanation

The rule on a seller continuing in possession of goods or documents of title covers delivery or transfer under any sale, pledge or other disposition. A pledge of the documents to a good-faith transferee without notice of the previous sale is therefore treated as authorised by the owner. The bank need not be a mercantile agent.

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