Contract of Pledge

The bailment of goods as security for payment of a debt or performance of a promise is called 'pledge'. The bailor is in this case called 'pawnor'. The bailee is called 'pawnee'.


(a)           If the pawnor makes default in payment of the debt in respect of which the goods were pledged,the pawnee may bring a suit against the pawnor and retain the goods pledged as a security (or) he may sell the goods pledged, after giving notice of the sale to the pawnor. 


(b)           If the proceeds of such sale are less than the amount due, in respect of the debt, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

For example, say A takes a loan of Rs. 20,000 from B. As an assurance that he will pay this money back, A keeps his car, as security, with B.

Thus, if after the fixed date, if A is unable to pay the money back to B, B can either bring a suit for this purpose while he retains the car, or he can sell the car for the purpose of recovering his dues. If B chooses to sell the car, the two possibilities are as follows: He may receive less than the amount due, in which case, A will still have to pay him the balance, or he may receive more than the amount due, in which case he must return the excess amount to A.

(c)           It is important to note, that in all contracts of bailment, the bailee, while he is in possession of the goods, steps into the shoes of the owner for the purpose of legal remedy. Thus, if any person were to deprive the bailee of the goods - by way of theft, etc. - the bailee, himself, would have the right to file a suit against such other person. If, any damages are received from such a suit, it would be split between the bailor and the bailee, according to the proportion of their losses or damages.


(d)           The pawnee can retain the goods pledged, not only for payment of the debt/interest on the debt but also for all necessary expenses incurred by him in preservation of the goods pledged.


The pawnee is entitled to receive from the pawnor, extraordinary expenses incurred by him for the preservation of the goods pledged.



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