What is the distinction between a pledge and a mortgage? What are the Pawnee’s rights where pawnor makes default?

Question: What is the distinction between a pledge and a mortgage? What are the Pawnee’s rights where pawnor makes default? [RJS 1969]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [What is the distinction between a pledge and a mortgage? What are the Pawnee’s rights where pawnor makes default?]

Answer

While both pledge and mortgage involve providing security for a debt, they differ in the nature of the property and the type of transaction:

a. Nature of Property: In a pledge, movable goods are pledged as security. In a mortgage, immovable property (such as land or buildings) is mortgaged as security.

b. Type of Transaction: A pledge involves a bailment of goods where possession is transferred. In contrast, a mortgage involves the transfer of an interest in immovable property as security for a debt.

c. Legal Formalities: Pledge does not require as many legal formalities as a mortgage. Mortgages typically involve more extensive documentation and registration requirements.

Rights of the Pawnee when the Pawnor Defaults(Section 176)

When the Pawnor defaults on the debt or obligation, the Pawnee (creditor) has certain rights:

a. Right of Sale: The Pawnee has the right to sell the pledged goods after giving proper notice to the pawnor. The sale proceeds are used to recover the debt owed.

b. Reasonable Notice: The Pawnee must provide reasonable notice to the pawnor before selling the pledged goods. The specific notice period may vary depending on the applicable laws.

c. Right of Appropriation: The Pawnee can appropriate the proceeds from the sale of the pledged goods towards the discharge of the debt owed. Any surplus proceeds may be returned to the pawnor, while any remaining debt may still be recoverable.