Duties and Rights of Pawnor and Pawnee

Introduction

In a contract of pledge under the Indian Contract Act, 1872, both the pawnor (borrower) and pawnee (lender) have specific duties and rights. These rules ensure fairness and protect both parties in case of default or misuse of goods. Understanding these duties is important for exams and practical application.

Meaning / Definition

A pledge is a bailment (delivery of goods for a purpose) where goods are given as security for repayment of a debt or performance of a promise.

• Pawnor: Person who gives goods as security
• Pawnee: Person who receives goods as security

Modes or Types

Duties of Pawnor

Pay the debt or perform promise
The pawnor must repay the loan or fulfill the promise as agreed.

Pay extraordinary expenses
The pawnor must pay any unusual expenses incurred by the pawnee to preserve the goods.

Disclose faults in goods
The pawnor must inform about defects in goods that:

• affect their use, or
• expose the pawnee to risk

Indemnify the pawnee
If the pawnee suffers loss due to defective title (ownership issue), the pawnor must compensate him.

Duties of Pawnee

Not to use the goods
The pawnee cannot use the goods unless permitted by the pawnor.

Return the goods
Goods must be returned once the debt is paid or promise is performed.

Take reasonable care
The pawnee must take care of goods as a reasonable person would take care of his own goods.

Not to mix goods
The pawnee must not mix pledged goods with his own goods.

Return increase (accretion)
Any increase (like natural additions) must be returned with the goods.

Act according to contract
The pawnee must not act in a way that violates the terms of the pledge.

Rights of Pawnor

Right to redeem (Section 177)
The pawnor can take back the goods by paying the debt:

• even after default, but
• before actual sale by pawnee

He must also pay extra expenses caused due to delay.

Right to enforce pawnee’s duties
All duties of pawnee become rights of pawnor.

Right to surplus
If goods are sold and money received is more than the debt, the extra amount must be returned to pawnor.

Rights of Pawnee

Right to retain goods (Sections 173–174)
The pawnee can retain goods for:

• repayment of debt
• interest
• necessary expenses

Right for subsequent advances
If additional loans are given, pawnee may retain goods for those also (unless agreed otherwise).

Right to extraordinary expenses (Section 175)
Pawnee can recover extra expenses, but cannot retain goods for this; he must sue.

Right to sue or sell (Section 176)
On default, pawnee can:

• sue pawnor and keep goods as security, or
• sell goods after giving reasonable notice

Right to surplus and deficit handling

• If sale amount is less → pawnor pays balance
• If more → pawnee returns excess

Right against third party (Section 178A)
If goods are pledged under a voidable contract (valid until cancelled), pawnee gets good title if:

• he acts in good faith, and
• has no knowledge of defect

Important Case Law

K.M. Hidaathulla v Bank of India
Court held that pawnee’s remedies (suit or sale) are separate (independent choices).

Central Bank of India v Abdul Mujeeb Khan
Pawnee was liable for loss due to negligence in handling goods.

Gurbax Rai v Punjab National Bank
Pawnor’s liability reduces if goods are lost due to pawnee’s negligence.

Jaswantrai Manilal Akhaney v State of Bombay
Right of redemption continues until actual sale of goods.

Distinction / Comparison

Pawnor vs Pawnee (Basic Difference)

Practical Example

A takes a loan from B and pledges gold as security.

• If A repays → B must return gold
• If A defaults → B can sell gold after notice
• If gold is damaged due to B’s negligence → A’s liability reduces
• If sale gives extra money → B must return surplus to A

Summary

• Pawnor must repay debt and disclose defects in goods
• Pawnee must take reasonable care and return goods after payment
• Pawnor has right to redeem goods before actual sale
• Pawnee can retain, sue, or sell goods on default
• Notice before sale is compulsory and cannot be waived
• Loss due to pawnee’s negligence reduces pawnor’s liability
• Surplus from sale goes to pawnor; deficit must be paid by pawnor