Page 113 - DMGT102_MERCANTILE_LAWS_I

Unit 8: Contract of Bailment and Pledge

In case the goods pledged when sold do not fully meet the amount of the debt, the pledgee can Notes
proceed for the balance. If, on the other hand, there is any surplus, that has to be accounted for
to the pledgor. Before sale can be executed, a reasonable notice must be given to the pledgor so
that:
1. The pledgor may meet his obligation as a last chance;
2. He can supervise the sale to see that it fetches the right price.

Example: A trader pledged certain goods in favour of a bank. On default to return the
loan, the bank sold the goods without giving a notice of sale to the trader as the loan agreement

specifically excluded it. Held, that such an exclusion clause is inconsistent with the provisions of
the Act and as such void and unenforceable.
However, the sale made by the pledgee without giving a reasonable notice to the pledgor is not
void, i.e., cannot be set aside. The pledgee will be liable to the pledgor for the damages.

8.7.1 Rights of Pledgee

In addition to the rights mentioned in s.176, a pledgee has the following rights:
1. It is the duty of the pledgor to disclose any defects or faults in the goods pledged which are
within his knowledge. Similarly, if the goods are of an abnormal character says explosives
or fragile, the pledgee must be informed. In case the pledgor fails to inform such faults or
abnormal character of the goods pledged, any damage as a result of non-disclosure shall
have to be compensated by the pledgor.
2. The pledgee has a right to claim any damages suffered because of the defective title of the
pledgor.
3. A pledgee’s rights are not limited to his interests in the pledged goods. In case of injury
to the goods or their deprivation by a third party, he would have all such remedies that
the owner of the goods would have against them. In Morvi Mercantile Bank Ltd v. Union
of India, the Supreme Court held that the bank (pledgee) was entitled to recover not only
` 20,000 – the amount due to it, but the full value of the consignment, i.e., ` 35,000. However,
the amount over and above his interest is to be held by him in trust for the pledgor.
4. Pawnee’s right of retainer [s.173]: The Pawnee may retain the goods pledged, not only for
payment of the debt or the performance of the promise, but for the interest of the debt and
all necessary expenses incurred by him in respect of the possession or for the preservation
of the goods pledged. However, s.174 provides that the Pawnee shall not, in the absence
of a contract to that effect, retain the goods pledged for any debt or promise other than the
debt or promise for which they are pledged; but such contract, in the absence of anything to
the contrary, shall be presumed in regard to subsequent advances made by the Pawnee.
5. A pledgee has a right to recover any extraordinary expenditure incurred for preservation
of the goods pledged (s.175).

8.7.2 Duties of a Pledgee

Duties of pledgee are as follows:
1. The pledgee is required to take as much care of the goods pledged to him as a person of
ordinary prudence would, under similar circumstances, take of his own goods, of a similar
nature.
2. The pledgee must not put the goods to an unauthorized use.

LOVELY PROFESSIONAL UNIVERSITY 107