CONTRACT OF PLEDGE

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According to Chapter IX under section 172 of the Indian Contract Act, the bailment of goods for payment of a debt or performance of a promise is called pledge. The bailor in this case is known as ‘pledger’ or ‘pawnor’. Bailee is called the ‘pledgee’ or ‘pawnee’. In this type of contract, the pawnor transfers/bail his goods to the Pawnee as security against the amount taken 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 the pawnor pays the amount. 

The Pawnee should not make unauthorized use of the goods bailed to him, if he does then is liable to pay compensation to the pawnor. The Pawnee has a right to sell the goods after giving prior notice to the pawnor if the latter fails to pay the amount back. 

RIGHTS OF PAWNOR 

RIGHT TO REDEEM GOODS 

 Pawnor has the right to redeem his goods i.e. to get back the goods from the Pawnee after the amount is paid to the Pawnee. 

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Illustration- If Anvita bailed her ring as security and took 10,000 rupees as a loan from Arnav; she has the right to get back her ring when she returns the money to Arnav. 

RIGHT TO CLAIM DAMAGES OR COMPENSATION 

It is the right of the pawnor to get compensation if the Pawnee makes any unauthorized use of the goods or fails to keep the goods safe. 

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Illustration – Arushi bailed her car as security and took rupees 1, 40,000 as a loan from Priyanshu on the terms that Priyanshu will not use the car in any manner. Priyanshu uses the car as a taxi. Arushi can claim damages as Priyanshu made unauthorized use of goods.

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, the Pawnee has a right to retain the goods of the pawnor. 

Illustration- Sahil bails his watch as security to Maitri for an amount of rupees 700. If Sahil fails to pay the amount or pays the amount after the time as per the terms and conditions, Maitri has a right to retain the watch. 

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RIGHT TO GET COMPENSATION

 In the case where the Pawnee suffered because of the goods of the pawnor, the Pawnee has a right to get compensation against the damages incurred due to the goods of the pawnor.

Illustration- Sadhana bails her scooty as security to Ragini for a loan of rupees 50,000 with the terms that Ragini can use her scooty. However, she did not disclose to Ragini that the brakes of the scooty were not working. Ragini met with an accident, she has the right to claim compensation from Sadhana. 

RIGHT TO SELL

 According to 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- A bails his gold chain to B as a security for the loan of amount rupees 70,000; if A fails to pay the amount back to B. B has a right to sell the chain and get the amount back. 

RIGHT TO GET EXTRAORDINARY EXPENSES INCURRED 

According to section 175 of the Indian Contract Act if the Pawnee has suffered any extraordinary expenses concerning the goods of the pawnor; has a right to get paid back by the pawnor. 

Illustration- Naman bails his cow to Arijit as security for rupees 15000 as a loan. Arijit incurred expenses like food, shelter, and medication; he has the right to get the entire amount back from Naman. 

DUTIES OF PAWNOR 

DUTY TO PAY BACK THE LOAN 

 It is the duty of the pawnor to pay the amount back to the Pawnee so that the goods can be taken back.

Illustration- Agatha has taken money worth rupees 40,000 as a loan from Christie and has given her phone as security. Agatha has a duty to pay the amount of the loan to Christie.

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 has incurred in keeping the goods safe.

Illustration – If X bails his dog to Z for rupees 20,000. Z paid all the expenses like food and shelter. Here X has a duty to pay back the money incurred by Z. 

DUTY TO PAY CLAIMS AND DAMAGES / COMPENSATION TO PAWNEE

The pawnor has a duty to pay the compensation or damages to the Pawnee; if the latter suffered any type of legal damages due to the pawnor’s goods. 

Illustration – Piyush bails his car as security to Mahima for the loan of rupees 80,000 with the terms that Mahima can use the car. However, he did not inform her that the brakes of the car were not working. Mahima met with an accident. Here it is the duty of Piyush to pay compensation to Mahima for the damages suffered by her due to his goods,

DUTIES OF PAWNEE

DUTY TO TAKE REASONABLE CARE 

It is the duty of the Pawnee to take reasonable care of the goods of the pawnor like his own goods.

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 to the pawnor. 

DUTY NOT TO MAKE UNAUTHORIZED USE OF GOODS

It is the duty of the Pawnee to not make any unauthorized use of the pawnor’s goods. If the Pawnee has made any unauthorized use of goods he will be liable to pay compensation to the pawnor. 

Example- If A bails his car to B as a security against a loan amount of rupees 1, 00,000. If B uses the car as a taxi without A’s consent; B will be liable to pay compensation for the unauthorized usage.

DUTY TO GIVE BACK THE OWNER ANY INCREMENT IN THE GOODS 

It is the duty of the Pawnee to give the pawnor any increment in the goods during possession.

Illustration – If Ghanshyam bails his cow to Bhanu as a security against a loan amount of rupees 80,000, the cow gives birth to a calf during Bhanu’s possession. It is the duty of Bhanu to return the calf and cow to Ghanshyam when the latter repays the amount. 

DUTY NOT TO MIX THE GOODS

It is the duty of the Pawnee not to mix the pawnor’s goods with his own goods.

Illustration – If A bails 100 liters of petrol to B against the loan of rupees 12000. It is the duty of B to not mix the goods of A with his own goods. 


 

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