M/s Party & Company was sanctioned a Cash Credit Facility of ₹4 lakh from M/s XYZ Bank against pledge of goods and personal guarantee of Mr. A who is not a partner in the firm. The bank subsequently recalled the adva

The right of sale conferred by Section 176 of the Contract Act, 1872 arises only if the pawner (pledgor) makes default in payment of the debt or performance of the promise at the stipulated time. Even when no period is fixed for the repayment of debt, or the performance of the promise, the pawnee (pledgee), to entitle him to exercise the power of sale conferred by this section must prove: That he had made demand for the payment of the debt, That the pawner had made a default, and He had given due notice of sale as required by this section. In the present case, the conditions (1 & 2) stand fulfilled. The contention of the guarantor is that the pledged goods were sold without due notice to him and the pawner. In case the right of sale is improperly exercised, the pawner is entitled to damages caused thereby. Here the pledged stock was sold in a public auction. Therefore, the damages in this case will be difficult to prove. The bank has followed the due process of law by selling the pledged goods through public auction after the default and then filing a suit for the balance amount. Mr. A, as a personal guarantor, is jointly and severally liable with the principal debtor (M/s Party & Company) for the repayment of the debt. The sale of pledged goods by public auction, even without the guarantor's explicit knowledge or consent, does not automatically prejudice his rights if the sale was conducted legally after due notice to the pawner (M/s Party & Company) and in good faith. The guarantor's liability remains for the balance amount.