Contents of Article
MEANING OF ‘PLEDGE’, ‘PAWNOR’, ‘PAWNEE’(Sec.172)
The bailment of goods as security for payment of a debt or performance of promise is called ‘pledge’.
The bailor in case of a pledge is called as ‘pawnor’.
The bailee in case of pledge is called as ‘pawnee’.
ESSENTIALS A VALID CONTRACT OF PLEDGE (Sec.172)
- There must be a contract
- The contract may be expressed or implied.
Pledge can be made of goods only.
There must be delivery of goods by one person to another person.
- Purpose of delivery
The goods must be delivered for some purpose.
The purpose must be to deliver the goods as security for
- payment of a debt; or
- performance of a promise.
- Return of goods
The delivery of goods must be conditional
The condition shall be that the goods shall be –
- returned (either in original form or in altered form); or
- Disposed of according to the directions of the pawnor when the purpose is accomplished.
RIGHTS OF PAWNEE(Sec.173 and 176)
- Right of Retainer [Sec.173]
Pawnee may retain the goods pledged for –
- payment of the debt or the performance of promise,
- any interest due on the debt; and
- all necessary expenses incurred by him with respect to possession or for preservation of goods pledged.
- Retainer for subsequent advances [Sec.174]
- Where the Pawnee lends money to the Pawnor subsequently, after the date of pledge, it shall be presumed that the he has a right of retainer over the goods already pledged in respect of the subsequent lending also.
- This presumption can be made invalid only by an expenses provision to that effect.
- Reimbursement of Expenses [Sec.175]
Where the Pawnee incurs extraordinary expenses to preserve the goods pledged with him, he is entitled to receive such amount from the Pawnor.
- Rights in case of default by Pawnor [Sec.176]
- Suit: Pawnee may institute a suit against Pawnor when there is a default in payment of debt or performance of promise at the stipulated time.
- Retention / Sale of goods: Pawnee may – (a) retain the goods pledged as collateral security, or (b) sell the goods pledged by giving a reasonable notice to the Pawnor.
- Surplus / Deficit on Sale : When there is a surplus on sale, Pawnee shall pay the excess to the Pawnor. In case of deficit, Pawnor shall be liable for the balance amount.
- No Notice: Where the Pawnee does not give a reasonable notice to the Pawnor, the sale is valid, but Pawnee is liable to pay damages to Pawnor.
- Right against true owner of goods [Sec.178A]
Where the Pawnor has acquired possession of pledged goods, under a voidable contract u/s 19 or 19A but contract has not been rescinded at the time of pledge, the Pawnee acquires a good title to the goods, against the true owner.
- The title of Pawnee is good only where – (a) he had no notice of the Pawnor’s defect in title and (b) he acts in good faith.
|Reasonable notice u/s 176 means that a notice of intended sale of the security by the Creditor within a certain date, so as to afford an opportunity to the Debtor to pay the amount within the time mentioned in the notice. Notice of sale is essential and a clause in the agreement excluding the requirement of Notice is inconsistent with the Act & is void and unenforceable.
|Prabhat Bank Ltd. vs Babu Ram
DUTIES OF A PAWNOR (Sec.175)– The Indian Contract Act 1872 Notes
- Pay the debt
The pawnor is liable to pay the debt or perform his promise as the case may be.
- Pay deficit on sale
If the pawnee sells the goods due to default by the pawnor, the pawnor must pay the deficit.
- Pay extra – ordinary expenses
The pawnor is liable to pay to the pawnee any extraordinary expenses incurred by the pawnee for preservation of goods.
- Disclose faults in goods
The pawnor is liable to disclose all the faults which
- are material for use of the goods; or
- may put the pawnee to extraordinary risks.
- Indemnify the pawnee
If loss is caused to the pawnee due to defect in pawnor’s title to the goods, the pawnor must indemnify the pawnee
DUTIES OF PAWNEE UNDER The INDIAN CONTRACT Act 1872 NOTES
- Not to use the goods
- The pawnee has no right to use the goods
- However, he may use the goods, if he has been so authorised by the pawnor.
- Return the goods
The pawnee must return the goods if the pawnor pays the debt or performs his promise.
- Take reasonable care
The pawnee must take such care of goods pledged as a man of ordinary prudence would take care of his own goods.
- Not to mix goods
The pawnee must not mix his own goods with the goods pledged.
- Return increase in goods
The pawnee must return to the pawnor any accretion to the goods pledged with him.
RIGHTS OF A PAWNOR(Sec.177)
- Redeem the goods pledged
Meaning of redemption
Right to recover back the goods by making payment of the debt or performance of promise.
Time for redemption
Where time of redemption is fixed, the pawnor may exercise redemption –
- within the time so fixed; or
- even after expiry of time so fixed, provided –
- the pawnee has not sold the good; and
- the pawnee pays the pawnee all expenses arising on account of his default.
- Enforce pawnee’s duties
The pawnor has the right to enforce the duties of pawnee, if the pawnee fails to fulfill his duties.
- Receive increase in goods
The pawnor has the right to recover from pawnee any increase in goods pledged.
- Right to receive notice of sale
In case of default by the pawnor to pay the debt or perform his promise, the pawnee has the right to sell the goods, after giving a reasonable notice to the pawnor. If the pawnee fails to give notice, the pawnor has the right to recover the loss incurred by him.
|Pledge is bailment of goods for a specific purpose, i.e. to provide a security for a loan or fulfillment of an obligation.
|Bailment may be for purpose other than by way of providing security for a loan or fulfillment of an obligation. It may be for purpose like repairs, safe custody, etc.
|2. Sale of Goods
|Pawnee, i.e. Pledgee has a right of sale of goods pledged on default of Pawnor. He can do so by giving a notice to the pawnor.
|There is no right of sale to the Bailee. Bailee may either – (a) retain goods, or (b) sue the Bailor for non – payment of his dues.
|3. Use of Goods
|Pledgee has no right of using goods pledged.
|Bailee can use the goods bailed as per terms of contract.