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.
Rights of Pawnee and Pawnor
Key features of Pledge are:
- The property under pledge shall be delivered to the Pawnee.
- Such delivery shall be in the pursuance of the contract.
- This delivery shall be for the purpose of security.
- Also, delivery of articles shall be upon a condition to return.
Rights of Pawnee
Pawnee has the following rights:
- Pawnee has a right to retain the goods pledged until payment of debt, interest and any other expense incurred for maintenance of such goods. For example, X pledges his gold jewelry for some loan from a bank. In such a case bank has all the rights to retain the gold jewelry not only for adjustment of loan amount but also for payment of interest accrued on such loan amount.
- Pawnee has a right to file a suit for recovery of debt while retaining the goods pledged as security.
- He has a right to sue for the sale of goods pledged and the payment of money due to him.
- Pawnee has a right to seek reimbursement of extraordinary expenses incurred. However, he cannot retain goods with him in such a case.
- Pawnee has a right to sell the goods after giving reasonable notice and time to pawnor. Pawnee can sue pawnor for deficiency, if any, after the sale of such goods. Also, if there is any surplus on sale of goods pawnee must return it to pawnor.
Rights of Pawnor
In case pawnee makes any unauthorized sale of goods pledged without giving proper notice and time to pawnor than pawnor has following rights:
- Right to file a suit for redemption of goods by making payment of debt.
- Right to claim for damages and loss on the ground of conversion.
Solved Example on Rights of Pawnee and Pawnor
What do you understand by ‘Pledge by Non-owners’?
Usually, the owner of the goods pledges them to secure a loan. But, under certain circumstances, the law permits a non-owner who is in the possession of the goods to pledge the goods. Thus, the following non-owners may create a valid pledge:
1. Mercantile Agent:
A mercantile agent who is in the possession of the goods or the documents to the title of the goods with the consent of the owner can pledge these goods while acting in the ordinary course of business. This pledge is as valid as if the owner of the goods expressly authorizes him to do so. But, this pledge is valid only when the Pawnee acts in good faith and at the time of pledge is unaware of the fact that the mercantile agent did not have the authority to pledge.
2. Pledge by seller or buyer in possession of goods after the sale:
A pledge by a seller who is in the possession of the goods after the sale is valid only when the Pawnee acts in good faith and at the time of pledge is unaware of the sale of goods to the buyer.
3. Limited interest:
When the pawnor not being the owner of the goods and having limited interest pledges the goods, the pledge is valid only to the extent of such limited interest.
4. Pledge by a co-owner:
When a co-owner in possession of the goods with the assent of all the other co-owners pledges them, it is a valid pledge.
5. Possession under a voidable contract:
A person may get the possession of the goods under a contract that is voidable at the option of the lawful owner. The contract is voidable on the grounds of fraud, misrepresentation, etc. The pledge by the person in possession of goods is valid until the contract is void.