Rights and Duties of Pawnor and Pawnee

A pledge is a kind of bailment in and of itself. A pledge is the transfer of goods as security for the payment of a debt or the performance of a promise. A "pledge" is stated as the bailment of goods as security for the payment of a debt or the performance of a promise under Section 172 of the Indian Contract Act of 1872.

In a pledge contract, the bailor is known as the pledger or powner, and the bailee is known as the pledgee or pawnee. The pledge contract can only be for movable property. Actual or constructive transfer of goods under pledge can occur. The pledger should have legal right to the goods pledged.

The object of the contract acts as the main distinction between a pledge and a bailment. The delivery of goods with the intention of providing security for a loan or fulfilling an obligation is referred to as a pledge.

Section 172 Of the Indian Contract Act Of 1872

The bailment of goods as security for the payment of a debt or the performance of a promise is called a "pledge." In this case, the bailor is called the "Pawnor." The Bailee is called the Pawnee.

Pledge, Pawnor, and Pawnee

Pawn has been stated as the bailment of products as security for the installment of an obligation or the execution of a guarantee. The bailor is known as the pledger or pawnor, while the bailee is known as the pledgee. This is called the pledge law or a pledge by non-owners. The pledge contract is valid between the parties.

Essentials of Pledge

The following are some essentials for the contract of Pledge −

• A bailment of goods pledged − The most important subject matter in this contract is the goods that can be really or constructively delivered, such as any kind of goods, documents, and valuable things

• Bailment with the specific purpose of security − The Pawnor delivers the goods for the purpose of security, and they must be returned or disposed of in accordance with the lender's directions.

• Security for payment of debt − The pledgor, who has taken a loan from the Pawnee, delivers his goods as security for the loan and interest repayment.

Rights of Pawnor

Right to get back the goods pledged

According to Sections 160 and 161 of the Indian Contract Act, the pawnor is entitled to the goods pledged with the pawnee upon performance of the promise within the time stated or repayment of the loan and interest, if any.

Right to increase or profit

According to Section 163 of the Indian Contract Act, if the value of the goods in pledge rises or profits, the pawnor has the right to such an increase or profit.

Right to compensation

If the goods under pledge are not properly cared for or used and are damaged or deteriorated as a result, the pawnor has the right to seek compensation for such damage or loss.

Right to get profit in case of sale

According to Section 176 of the Act, if the pawnor fails and the pawnee sells the goods under pledge and the amount received from such a sale exceeds the amount of the loan plus interest owed, the pawnor has the obligation to repay the surplus.

Defaulting pawnor’s right

According to Section 177 of the Act, if a time limit is set for the repayment of a loan or the performance of a promise, and the pawnor fails to meet that limit, he has the right later, before the goods are sold, to have the goods released in payment for the loan amount plus the pawnee's expenses.

Preservation and maintenance of the goods

The pawnor has the right to see that the pawnee, like the bailee, preserves and properly maintains the goods pledged.

Rights of an Ordinary Debtor

In addition to the rights stated above, the pawnor has the rights of an ordinary debtor, which are conferred on him by various statutes designed to protect debtors.

Rights of Pawnee

The following are the rights of the Pawnee, to whom the goods are pledged −

Right to Retain Goods

Section 173 gives him the right to retain the goods pledged until the debt is repaid. He may also keep them for the debt's interest and any expenses incurred while preserving the goods. He only has the right to a particular lien on goods.

Right to retain subsequent advances

If there is no agreement to the contrary, the Pawnee has the right to retain the pledged goods, including money lent by him, after the date of the pledge.

Right to Unordinary Expense

Section 175 provides the pawnee the ability to give the extraordinary expenses he incurred in preserving the goods. He does not have the right to lien these goods, but he can try to recover them from the court.

Right against the true owner

According to Section 178A, if the pledgor's title to the pledged goods is defective, the pawnor still has the right to acquire a good title to the goods if done in good faith.

Duties of Pawnor

The duties of a pawnor are as follows −

To pay the debt

It is the pawnor's duty to pay back his debt and interest on it on the due date and in the manner stated in the contract.

To disclose the defects in goods

According to Section 150, the pawnor is obliged to disclose any defects in the goods that are within his knowledge and might cause inconvenience or harm to the pawnee at the time of the pledge.

To repay the necessary expenses

According to Section 175, if the pawnee has incurred any reasonable expense on the maintenance or upkeep of the goods in pledge during the term of the contract, the pawnor is liable to pay such expense to the pawnee.

Duty after sale

In the case of the pawnor's default in loan payment, if the goods under the pledge are sold and the sale proceeds are less than the amount of the loan plus interest payable, the pawnor is required by law to pay the difference.

Duties of Pawnee

The duties of the pawnee include −

To take reasonable care of goods pledged

Section 151 allows the pawnee to take reasonable care of the property pledged with him.

Not to make improper use of goods pledged

The pawnee should not make improper use of goods under his control under a pledge, according to Section 154.

Not to mix the goods pledged with his own goods

Sections 156 and 157 require the pawnee not to mix his own goods with the pawnor's goods pledged to him.

To return the goods pledged after the performance of the contract

According to Section 160, the pawnee is obligated to collect the goods under pledge upon the pawnor's payment of the loan or performance of his promise. Section 163 requires the pawnee to return the increase in the value of the goods to the pawnor.

If the pawnee fails to perform his duties, he is responsible to the pawnor in the same way as a bailor is responsible to a bailee.

Conclusion

The pawnor transfers/bailed his assets to the Pawnee as security for the sum he gets in the pledge from the Pawnee. The pawnor is responsible for returning the goods when the pawnor has paid the money. If the Pawnee makes illegal use of the goods bailed to him, he must compensate the pawnor.

Frequently Asked Questions (FAQs)

Q1. What are the rights and duties of a pawnor?

Ans. The pawnor is liable for paying the debt or performing the promise, as the case may be. It is the pawnor's duty to compensate the pawnee for any extraordinary expenses incurred in preserving the goods pawned.

Q2. What are the liabilities of Pawnor?

Ans. If the pawnor is not also liable for the debt as a borrower, guarantor, or otherwise, the act of making a pledge does not make the pawnor liable to the creditor or pawnee for anything more than the value of the goods pledged.

Q3. Does a pawnor have the right to compensation?

Ans. The right to compensation If the pawnee misuses the pledged goods and degrades their quality, the pawnor may seek compensation.

Q4. What are the rights of the pawnee in case his advance to the pawnor is not repaid in time?

Ans. If the Pawnor fails to pay the debt or fulfill the promise within the specified time, the Pawnee may sue the Pawnor for the debt or promise; retain the pledged goods as collateral security; and sell the pledged goods after giving the Pawnor reasonable notice of sale.