“A” purchased a golden chain from B by exercising undue influence and pledged it with “C” before the contract was rescinded by “B”. Is the pledge valid?
Yes. Sec. 16 of the Indian Contract Act, 1872 defines ‘undue influence’ as “a contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties is such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other”. A contract that has been entered into using undue influence is voidable, which means the party who has been unduly influenced may choose to continue with the contract or annul it.
However, Sec.29 of The Sale of Goods Act, 1930 provides that if a person has obtained possession of goods under a voidable contract, then he can make a valid transfer to other buyers but before the first contract is rescinded.
Going by the above provisions of law, in the instant case, A’s contract with B for purchase of the golden chain is a voidable one. Before B rescinded the contract on this ground, A had already pledged the same with C. However C must be an innocent pledger for value.
Therefore, the pledge is valid and B cannot recover the golden chain from C which was pawned by B. The same decision was held in ‘Phillips vs. Brooks’.