PLEDGE OR PAWN

A pledge is a special kind of bailment. In this case, the goods are delivered as a security for a
loan or for the fulfillment of an obligation. According to Sec. 172 of the Indian Contract Act
defines pledge as, “the bailment of goods as security for payment of a debt or performance of a
promise”. The bailor is in this case called the “pawnor” and the bailee is called the “pawnee”.

Pawnor or Pledger:

The person who delivers the goods as security for payment of a debt or performance of a
promise is called the pawnor. In the aforesaid example, Y is the pawnor.
Pawnee or Pledgee:
The person to whom the goods are delivered as security for payment of a debt or performance
of a promise is called the Pawnee or Pledgee. In the aforesaid example, Citi Bank is the
pawnee.

RIGHTS OF PAWNEE OR PLEDGEE

Right of retainer: The pawnee may retain the goods pledged not only for payment of the debt or
the performance of the promise, but for the interest of the debt, and all necessary expenses
incurred by him in respect of the possession or for the preservation of the goods pledged.

Right of retainer for subsequent advance: When the pawnee lends money to the same pawnor
after the date of the pledge, it is presumed that the right of retainer over the pledged goods
extends to subsequent advances also.

Right to extraordinary expenses: The pawnee is entitled to recover from the pawnor
extraordinary expenses incurred by him for preserving the goods pledged. This right is only a
right of action but not a lien.

Right in case of default of the pawnor:

To bring a suit on the debt and to retain the goods pledged as a collateral security.
To sell the goods pledged after giving reasonable notice to the pawnor.

DUTIES OF PAWNEE
The pawnee has almost the same duties as those of the bailee. His duties as follows:

● To take reasonable care of the goods pledged;

● Not to make any unauthorized use of goods;
● Not to mix goods pledged with his own goods;
● To return goods; and
● To return accretions to the goods.
 RIGHTS OF PAWNOR

Defaulting pawnor’s right to redeem:

The pawnor has an absolute right to redeem the goods pledged, upon the satisfaction of the
debt. When the time is fixed for the payment of the debt, the pawnor may redeem the goods
even after the expiry of the fixed time.

Preservation and maintenance of the goods:

It is implied that the pawnee as a bailee is bound to preserve the goods pledged and properly
maintain them.

Protection as an ordinary debtor:

It is also implied that a pawnor has the rights of protection as an ordinary debtor by statutes
meant for such protection e.g., the Moneylender’s Act.

Right to receive the increase:

The pawnor has a right to receive any increase of profits from pledged goods.

DUTIES OF PAWNOR
The duties of pawnor are almost similar to those of a bailor which have already been discussed.
However, the following are some additional duties of the pawnor.

Duty to repay the loan:

If he fails to repay the loan, as per the terms of the contract, the pawnee may bring a legal
action against him for the recovery of the loan.

Duty to pay the expenses in case of default:

The pawnee must pay the expenses incurred by the pawnee due to default in repaying the loan
at stipulated time.

PLEDGE BY NON-OWNERS

According to the general rule, only the true owner can pledge the goods
but under the following cases, even a non-owner can make a valid pledge:
1. Pledge by a mercantile agent: The mercantile agent is an agent who has the authority either
to sell the goods, or to consign the goods for the purpose of sale, or to buy the goods or to raise
money on the security of the good. Following are the conditions for a valid pledge by a
mercantile agent:
a) The mercantile agent must be in possession of goods or documents of title to goods.
b) The possession of goods must be with the consent of the owner.
c) The goods most he in the possession of the agent in his capacity as
a mercantile agent.
The pawnee must act in good faith and should not have notice, at the time of pledge, that
pawnor has no authority to sell.
Pledge by a person in possession under a voidable contract (Section 178-A): Where a person
obtains possession of goods under a voidable contract, the pledge created by him is valid
Provided
(a) the contract has not been rescinded at the time of pledge, and
(b) the pawnee acts in good faith and without notice of pawnor’s defect of title.

Pledge by a pawnor having only a limited interest (Section 179): Where a person pledges goods
in which he has only a limited interest, the pledge is valid to the extent of that interest.

Pledge by co-owner in possession: Where there are several joint owners of goods then pledge
by one of them who is in possession of the goods, with the consent of other co-owners, shall be
valid.
Pledge by a seller in possession after sale [Section 30 (1) of the Sale of Goods Act]: A seller
who continues to be in possession of the goods even after their sale, can make a valid pledge
provided the pawnee acts in good faith and has no notice of sale.

Pledge by a buyer in possession before payment of price [Section 30 (2) of the Sale of Goods
Act]: A buyer who obtains possession of goods with the consent of the seller before payment of
price and pledges them, the pawnee will get a good title provided he does not have
notice of seller's right of lien or any other right.