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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Which one of the following changes would take away the protection of Section 178 from a pledge made by a mercantile agent?

Protection under Section 178 is lost if the pawnee had notice at the time of the pledge that the agent had no authority to pledge. The section requires good faith and absence of such notice; possession of a document of title with consent is sufficient.

  1. AThe agent holds only the document of title to the goods, with the owner's consent
  2. BThe pawnee had notice at the time of pledge that the agent had no authority to pledgeCorrect
  3. CThe pledge is made for a loan to be used in the agent's business
  4. DThe pawnee is a bank rather than an individual

Explanation

Section 178 requires that the pawnee acts in good faith and has no notice at the time of the pledge that the pawnor lacks authority. Holding a document of title with consent is expressly covered. The purpose of the loan or the type of pawnee does not matter. Notice therefore destroys the protection.

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