Bailment of Pledges & Suits by Bailees and Bailors
Section 172. Pledge, Pawnor and Pawnee defined.
When goods are delivered to someone as security for a debt or promise, it is called a Pledge.
The person giving the goods (bailor) is called the Pawnor.
The person receiving the goods (bailee) is called the Pawnee.
Section 173. Pawnee’s right of retainer.
The pawnee can keep the pledged goods until the debt is paid or the promise is performed.
The pawnee can also retain the goods to cover interest on the debt.
Additionally, the pawnee can keep the goods to recover any necessary expenses incurred for taking care of or preserving the pledged goods.
Section 174. Pawnee not to retain for debt or promise other than that for which goods pledged.
Presumption in case of subsequent advances.
The pawnee cannot retain the pledged goods for any debt or promise other than the original one, unless there is a specific agreement allowing it.
If the pawnee gives subsequent advances to the pawnor, it is generally assumed that the pledge also covers these new advances, unless there is an agreement stating otherwise.
Section 175. Pawnee’s right as to extraordinary expenses incurred.
The pawnee can claim extraordinary expenses from the pawnor.
These are expenses beyond normal care that were necessary to preserve the pledged goods.
The pawnor must reimburse the pawnee for such expenses.
Section 176. Pawnee’s right where pawnor makes default.
When a pawnor (the person who pledges goods) defaults in payment of a debt or performance of a promise, the pawnee (the person holding the pledge) has the following rights:
Sue for the debt or performance
The pawnee can file a suit against the pawnor to recover the debt or enforce the promise.
Retain the pledged goods as security
The pawnee may keep the goods until the debt or obligation is satisfied.
Sell the pledged goods
The pawnee may sell the goods after giving reasonable notice to the pawnor.
If sale proceeds < debt: The pawnor must pay the remaining balance.
If sale proceeds > debt: The pawnee must pay the excess to the pawnor.
Section 177. Defaulting pawnor’s right to redeem.
If the pledge has a stipulated time for repayment or performance, and the pawnor defaults, he can still redeem the pledged goods before they are sold.
To do so, the pawnor must also pay any expenses that arose because of his default.
The pawnor can reclaim the goods, but must cover extra costs caused by the delay.
Section 178. Pledge by mercantile agent.
If a mercantile agent has the owner’s consent to possess goods or documents of title, any pledge they make in the ordinary course of business is valid.
This is true even if the agent is not expressly authorised to make the pledge.
The pledge is valid only if the pawnee acts in good faith and does not know that the agent lacked authority.
Explanation:
Mercantile agent and Documents of title have the meanings given in the Indian Sale of Goods Act, 1930.
A mercantile agent under the Sale of Goods Act, 1930, is an agent who, in the customary course of business, has the authority to:
Sell goods.
Consign goods for sale.
Buy goods.
Raise money on the security of goods.
Section 178A. Pledge by person in possession under voidable contract.
If a pawnor obtains goods under a voidable contract (under Sections 19 or 19A), and pledges them before the contract is rescinded.
The pawnee gets a valid title to the pledged goods.
This is only valid if the pawnee acts in good faith and does not know about the pawnor’s defective title.
Section 179. Pledge where pawnor has only a limited interest. Suits by bailees or bailors against wrong-doers
If a person pledges goods in which they have only a partial or limited interest, then:
The pledge is valid only for the portion of the goods corresponding to their actual interest.
The pawnee’s rights are limited to the pledger's share in the goods.
Section 180. Suit by bailor or bailee against wrong-doer.
If a third party wrongfully takes or damages the goods in the bailee’s possession, then:
The bailee can take legal action just like the owner could have if there had been no bailment.
Essentially, the bailee’s rights against third parties are the same as the owner’s rights.
Section 181. Apportionment of relief or compensation obtained by such suits.
Any relief or compensation obtained by the bailee in such a suit is to be shared between the bailor and bailee.
The division is made according to their respective interests in the goods.
Both parties are supposed to be treated fairly based on their stake in the bailed property.
