Concept of Pledge
Concept of Pledge: In the pledge, the pawnor transfer/bailed his goods to the Pawnee as security against the amount he takes from the Pawnee. The pawnor has a duty to pay the amount back to the Pawnee and the Pawnee has a duty to return the goods after pawnor pays the amount. The Pawnee should not make unauthorized use of the goods bailed to him if he does he will be liable to pay compensation to the pawnor. The Pawnee has a right to sell the goods after giving prior notice to the pawnor if he fails to pay the amount back.
Illustration of Concept of Pledge
A borrowed Rs.100 from B and gave his cycle as a security for the repayment of the amount, in the condition that if A pays back to B he will get his cycle back. it is called the contract of Pledge.
Rights and Duties of Pawnor
Rights of Pawnor
Right to redeem goods
It is the right of the pawnor to redeem his goods i.e. to get back from the Pawnee after he paid the amount to the pawnee.
Illustration
If A bailed his watch as security and took Rs.800 as a loan from N. A return the money to N. Here, A has a right to get his watch back.
Right to claim damages or compensation
It is the right of the pawnor to get the compensation if the Pawnee makes any unauthorised use of the goods or fails to keep the goods safe.
Illustration
If A bailed his Car as security and took Rs.1,30,000 as a loan from C on the terms that C will not use that car in any manner. C uses it as a taxi. Here A can claim damages as C made unauthorized use of the goods.
Duties of Pawnor
Duty to pay the loan
It is the duty of the pawnor to pay the amount back to the pawnee so that he will get his goods back.
Illustration
If A bails his gold chain as security to B for a loan of Rs.3000 Here, A has a duty to pay back the amount of loan to B.
Duty to pay extraordinary expenses incurred by Pawnee.
It is the duty of the pawnor to pay the extraordinary expenses to the pawnee, which the Pawnee incurred in keeping the goods safe.
Illustration
If A bails his cow to B for Rs.8000. B paid all the expenses like food for cow, shelter etc. Here A has a duty to pay the expenses back to B.
Duty to pay claims and damages or compensation to Pawnee
The pawnor has a duty to pay the compensation or damages to the Pawnee if the Pawnee suffered any type of legal damages due to pawnor’s goods.
Illustration
If A bails his bike as security to B for the loan of Rs.50000 with the term that B can use his bike. A, however, didn’t disclose the fact to B that the breaks of the bike are not working well. B met with an accident and suffered damage. Here it is the duty of A to compensate B for the damage he has suffered due to A’s goods.
Rights and Duties of Pawnee
Rights of Pawnee
Right to retain Goods
As per Section 173 of the Indian Contract Act, if the pawnor fails to pay the amount to the Pawnee, so the Pawnee has a right to retain the goods of the pawnor.
Illustration
If A bails his watch as security to B for the loan amount of Rs.500. If A fails to pay the amount or pays the amount after the time as per the terms and conditions, B has a right to retain the watch.
Right to get compensation
In the case, where pawnee suffered because of the goods of the pawnor, the Pawnee has a right to get the compensation against that damage from the pawnor.
Illustration
If A bails his bike as security to B for the loan of Rs.50000 with the terms that B can use his bike. A, however, didn’t disclose the fact to B that the brakes of the bike were not working well. B met with an accident and suffered damage. Here, B has a right to claim compensation from A.
Right to Sell
As per section 176 of the Indian Contract Act, if the pawnor fails to pay the amount back to the Pawnee, the Pawnee has a right to sell the goods and reimburse his amount.
Illustration
If A bails his gold ring to B as a security for the loan amount of Rs.7000 if A fails to pay the amount back to B. B has a right to sale the ring and get his amount back.
To get extraordinary expenses incurred by him
As per section 175 of the Indian Contract Act, if the pawnee has suffered any extraordinary expenses with respect to pawnor’s goods then he has a right to get paid back by the pawnor.
Illustration
If A bails his cow to B as security for Rs.18000 as a loan. B incurred expenses like food expenses, shelter expense etc. B has a right to get all the amount back from A.
Duties of Pawnee
Duty to take reasonable care
It is the duty of Pawnee to take reasonable care of the goods of pawnor, like his own goods.
Illustration
If A bails his gold to B for the amount of Rs.80, 000 as loan security. B has a duty to keep the gold of A safe and should take reasonable care.
In this case, the bank was the Pawnee and the defendant was the pawnor, the pawnor bails his 5000 tins of groundnut oil as security against the amount of Rs. 75000. The defendant died. The bailed goods of the defendant were lost from the possession of the bank. Later, after the given time limit bank files a case against the defendant as ask for the repayment of the amount. The bank states that, as the bank is the Pawnee, they have the right to get their money back, but because they lost the goods of the plaintiff whose market value is Rs. 75000, that makes them not able to get their payment back, thus the petition got dismissed
Duty to give back the goods after repayment of the loan
When the pawnor pays back the amount to the Pawnee, the Pawnee has a duty to give back the goods back to the pawnor.
Illustration
If A bails his watch to B as security for Rs.2000 as a loan. It is the duty of B to give back the watch to A when A repay Rs.200
Duty not to make unauthorized use of goods
It is the duty of the Pawnee to not to make any unauthorized use of pawnor’s goods. If the Pawnee makes unauthorized use of goods he will be liable to pay compensation to the pawnor.
Illustration
If A bails his car to B as a security against loan amount of Rs.90000. If B uses the car as a taxi without A’s Consent. Here, B will be liable for unauthorized use of the car.
Duty to give back the owner any increment in the goods
It is the duty of the Pawnee to give to the pawnor any increment in the goods during his possession.
Illustration
If A bails his cow to B as a security against loan amount of Rs.80000. During B’s possession cow gives birth to a calf. If A repays the amount, It is the duty of B to give that calf and the cow back to A.
Duty not to mix the goods
It is the duty of the Pawnee to not to mix the pawnor’s goods with his own goods.
Illustration
If A bails 100lt. of petrol to B against the loan of Rs.13000. It is the duty of the B to not mix the goods of A with his goods.
Pledge by Non Owner
Pledge by Mercantile agent
Section 178 of the Indian Contract Act states that the pledge between the mercantile agent and Pawnee can be valid if the agent has the possession of the goods with the consent of the owner and the Pawnee acted good faith and does not know about the original title of the goods.
Illustration
If A is a mercantile agent of B bails the bike of B which is in his possession to D. D in good faith and does not know about the title of the bike accept as security. Here the pledge is considered as valid. But if B knows about title, then the pledge will not be held valid.
Pledge by the person in possession under voidable contract
As per section 178 ‘A’ of the Indian Contract Act, the pledge between the pawnor having the possession of the goods under voidable contract and pawnee can be valid, provided that during the pledge the contract has not been revoked and the pawnee acted in good faith and does not have any idea about the title of the goods.
Illustration
If A has possession of the watch under voidable contract, bails the watch to B. B in good faith and does not know about the title of the watch, accepts it. That pledge is considered as valid. But if B knows about the title, then that pledge is not considered as valid.
Pledge where pledger has only a limited interest
As per Section 179 of the Indian Contract Act, the pledge between the pawnor having limited interest and Pawnee can be valid, if during the pledge the pawnee acted in good faith and does not know about the title of the goods.
Illustration
If A finds a defective watch and spent Rs.50 in repairing that watch. Here A can have a limited interest on watch i.e. he can bail the watch in pledge for Rs.50 or less.
Pledge by a co-owner in possession
The pledge between a co-owner and Pawnee can be valid if he has the consent of other co-owner. But when the co-owner without the consent of other co-owner enters the contract of pledge, that contract can be valid if the Pawnee acted in good faith and does not know about the title of the goods.
Illustration
Situation 1: If A and B jointly owned a car. The car is in the possession of A. One day A wants to bail the car for the purpose of the pledge, he has to take the consent of B.
Situation 2: if A enters into the pledge with C and bails the car to C, without the consent of B. That pledge is considered as valid only if C acts in good faith and does not know anything about the title of the car.
Pledge by seller or buyer in possession
A seller, after selling his goods has the possession of the goods with the consent of the buyer or the buyer before completion of the sale has the possession of goods with the consent of the seller can enter into the valid pledge. But if the party enter into a contract without the consent of the other party, that contract can be valid, if the Pawnee acted in good faith and does not know about the title of the goods.
Illustration
If A buys a cycle from B. A after purchase left the cycle in the possession of B. B bails the cycle in a pledge with C. C act in good faith and does not know about the title of the cycle. This is a valid pledge.
Relation Between Pledge and Bailment
Similarities
- In Both, Pledge and Bailment only movable property delivered to the Pawnee/bailee.
- In both cases, both the party enters into an agreement.
- In both cases, bailee/pawnee has to return the goods to bailor/pawnor.
- In both cases, bailor/pawnor has to pay any extraordinary expenses if incurred by bailee/pawnee.
- In both cases, the bailee/pawnee has to compensate bailor/pawnor for any damage to goods or unauthorized use of goods.
Difference
- The Pawnee cannot use the goods pawned, but in bailment, bailee can use the goods bailed if the terms of bailment so provide.
- In Bailment, goods are bailed for some specific purpose, but in pledge, goods are bailed as a security for the loan.
Conclusion
When a person transfers the possession of his goods to another person for some specific purpose, then it is called the contract of bailment. If there is a benefit of one party through the bailment and other party does not get anything in return, that bailment is called gratuitous bailment. And when the contract of bailment is done which result in the mutual benefit of both i.e. bailor and bailee, is called non-gratuitous bailment.
The bailor has the duty to disclose the defect of the goods and to repay the amount incurred by a bailee to keep goods safe and any damages against the damage caused to bailee by the goods of the bailor. similarly, the bailee has the duty to keep the goods of the bailor safe and to return them to bailor after completion of the purpose for which the bailment takes place.
In the pledge, the pawnor transfer/bailed his goods to the Pawnee as security against the amount he takes from the Pawnee. The pawnor has a duty to pay the amount back to the Pawnee and the Pawnee has a duty to return the goods after pawnor pays the amount. The Pawnee should not makes unauthorized use of the goods bailed to him if he does, he will be liable to pay compensation to the pawnor.