A pawn is a type of pledge. It is a bailment of movable property as security for a debt or obligation. The pawnee or pledgee; the creditor, receives the pawned item (or pawn). The pawned item must be delivered to the pawnee, whether actually, or by way of constructive delivery of possession. The pawnee is said to have a special property in the item pledged. The general property remains in the pawnor/ pledgor.
Some items may not be lawfully pawned, including seaman’s property, linen apparel, unfinished goods or materials, firearms and social welfare documents. The prohibitions are found in 19th Century and more modern legislation.
There is usually a contract regulating the deposit of the goods. If a contract for the repayment of money is void, it follows that a pawn may not be validly given by way of security.
The delivery of the goods by way of a pawn is usually made in pursuance of the contract which establishes the debt. A person may pawn at common law if he has the capacity to enter a contract. The advance and delivery need not be simultaneous even where the pawn is agreed as security for the debt at the outset. A pawn can be given as security for an existing debt.
Delivery of the Goods Required
A contract to deliver the goods by way of pawn does not of itself create the requisite special property. Actual or constructive delivery is required. The delivery of a receipt or putative “documents of title” to goods (other than a bill of lading), does not amount to a delivery and receipt of the goods for the purpose of a pawn. However, there may be constructive delivery.
Constructive delivery may arise by a symbolic act such as the delivery of a key to a room in which the relevant goods are stored in some cases. Where the goods are held by a third person such as a warehouseman, constructive delivery may be given by way of order to the person who holds the goods, that is he must hold them for the benefit of the pawnee. This should be perfected by acknowledgement.
The pawnor does not generally warrant the quality of the goods. However, if he makes a false or fraudulent statement, he may commit an offence.
Creation without Authority
Where the owner of the goods leads a third party to believe that the pawnor has authority, he may be estopped from denying that authority. This principle applies on a statutory basis to mercantile agents and the purchasers and sellers of goods respectively in possession as set out above.
Where a mercantile agent is in possession of goods with the consent of the owner, or of documents of title, a pledge made in the ordinary course of business is valid as if it was authorised by the owner of the goods. This is provided that the pledgee acts in good faith and has no notice that the agent, in fact, has no authority. The principle applies, even if the usage of the trade is such that the agent does not have the authority to pledge goods of the type entrusted to him.
If the vendor of goods remains in possession of them after sale and pledges them, the pledge is valid if received in good faith, without notice of the sale, as if the owner purchaser has authorised the pledge. Similarly, if a purchaser who purchases or agrees to purchase goods, obtains possession of them with the seller’s consent and delivers them under a pledge, the pledgee is similarly protected. A hire purchase agreement which imposes an obligation to buy is also within the scope of the protection.
Redemption and Release
The person who has pawned or pledged goods may sell what he has pledged with the benefit of the right of redemption. The purchaser succeeds to the right to redeem. The right to redeem is absolute at common law as the general property remains in the pledgor He may redeem at any time during his life (as may his personal representative after his). Redemption requires tendering of the monies due for the debt.
The contract of pawn is terminated by the satisfaction of the debt or engagement and the re-delivery of the goods. The pawnee is obliged to redeliver the goods on payment of the monies with interest due. The pawnee may hand back the pledged goods to the pawnor for a special purpose, without extinguishing the contract or undermining the security.
The pawnee has a right to retain possession while the secured sums remain due. This terminates when the secured monies are tendered or paid.
The person pawning must have authority and title to pledge. There is an implied warranty by the person pledging / pawning goods, that he has authority to pledge them and that they may be delivered back to him.
If the pawnor has a right to immediate possession, he may maintain an action for trespass.
If the pawnor has stolen the goods or obtained them by fraud, the property does not pass to him. Where goods are obtained by fraudulent representation, the title of the pawnor who has acquired the is voidable only. Where goods have been wrongfully pawned, the true owner may be entitled to damages for the value of goods converted.
The special property of the pawnee entitles him to sell the pledged good when the right to do so arises. It is more than the mere right to retain the goods, which subsists in the case of a lien.
If there is an increase in the value of the pledged item during the course of the pawn, then this accrues for the benefit of the pledgee / pawnee.
Possession by the person to whom goods have been pawned by a non-owning third party, is not sufficient proof of ownership, against the real owner. Accordingly, the pawnee must deliver the goods to the real owner. The rules as to mercantile agents, buyers and sellers above are exceptions to this principle.
Pawnee’s Duty of Care
The pawnee must take ordinary care of the pledged goods If the pawnee loses the goods without default, the debt may still be recovered. However, if he keeps them after retender or payment, he does so at his risk. He may be liable for the failure to redeliver the pawned goods on repayment.
The pawnee may not use the goods if they are subject to wear and tear. Subject to this, he may make reasonable use of them. If he is put to expense in retaining custody of the goods, he may retain a reasonable amount on sale, in order to recompense himself. If the use of the goods is necessary in order to preserve the item, the pledgee may make that use.
The pawnee’s special property in the goods may be assigned or sub-pledged. The pawnee remains responsible under his duty of care and for their safe custody, to the pawnor.
Power of Sale and Enforcement
The pawnee has the power of sale on default, at the due time for payment. If there is no due time specified, the pawnee may demand payment, and in default, he may sell on giving notice of his intention to do so. The power to redeem endures up to the moment of sale.
If the pawnee sells under his special property in the goods, the proceeds must be applied towards the debt. Any surplus must be accounted for to the pawnor. The pawnee must ensure that the terms of the sale are prudent. If the goods are in bulk, he must sell no more than necessary for the sale. The pledgee may sue for any deficit.
The pawnee may sue for the debt, notwithstanding the pledge. However, the pawnee’s rights are discharged, if the debt is paid. If the pledge item is perishable, the pawnor has no recourse if it perishes. A pawnee who was wrongfully deprived of the pledged item may maintain an action for trespass.
Where a judgment has been obtained against the pawnor, the goods may not be seized from the pawnee. The sheriff may seize goods pledged to the pawnee in execution against the pawnee. He succeeds to the right of the pawnee and may exercise the right of sale if it arises under the terms of a pledge.
On insolvency, the pawnee is a secured creditor and may exercise his rights in respect of the pledged goods. This does not apply to a pawn taken after notice of bankruptcy.
Regulation of Pawnbrokers
A pawn is a pledge of goods with a pawnbroker. Pawnbrokers must be licensed. It is an offence to carry on a pawn business without a licence. The business is subject to certain regulation and requirements. Certain opportunities must be given to redeem the pawn before resort may be had to enforcement.
There are requirements in relation to pawnbroker’s sales. Certain records must be kept, prior notices must be published and certain procedures must be followed. Every auction of pawnbrokers’ pledges must be conducted by an auctioneer approved under the legislation and must be conducted in the premises of the auctioneer conducting the auction. The auction of pawnbrokers’ pledges must be conducted in accordance with certain regulations in the legislation.
The auctioneer must insert in a public newspaper circulating in the area in which the pawnbroker’s premises are situated an advertisement giving notice of the sale and stating certain details. The auctioneer must cause all pledges to be exposed to public view.
The auctioneer must, within fourteen days after the sale, deliver to the pawnbroker a copy of the catalogue, or of so much thereof as relates to the pledges of that pawnbroker, filled up with the amounts for which the pledges of that pawnbroker were sold, and the copy shall be authenticated by the signature of the auctioneer The pawnbroker shall preserve the catalogue for at least twelve months after the auction.