Who is generally entitled to the excess of proceeds from the sale at public auction of pledged property after applying to the secured loan, in the absence of an agreement to the contrary?

• A. Always pledgee
• B. Always pledgor
• C. Generally pledgee unless granted to the pledgor
• D. Generally pledgor unless granted to the pledgee

Answer: (C)

When a pledged asset is sold at a public auction to satisfy the secured loan, the proceeds are used first to cover the debt (principal plus interest) and the costs of the sale. Any money that’s left over after those obligations are paid is the excess. The default rule is that this excess goes to the pledgee, unless the security agreement says otherwise. The rationale is that the pledgee’s security interest is the reason the sale occurs in the first place, so the remaining funds, beyond what’s needed to fully satisfy the debt, are treated as the pledgee’s remedy for enforcing the security. If the parties want the pledgor to receive the surplus, they must include that arrangement in the agreement.