PLEDGE
• Section 172
• The Indian Contract Act 1872 defines the Contract of Pledge as:
• The bailment of goods as security for payment of a debt or performance of a
promise is called pledge.
• The bailor is in this case called the pawnor. The bailee is called pawnee.
• Pledge is also a type of bailment due to the fact that a contract of pledge to
come into existence, delivery of goods is requisite
• Essentials of Pledge :-
• Delivery of the good to be pledged
• A valid contract
• Right on the Pledge
• Time of Delivery
WHO MAY PLEDGE
• i) The owner, or his authorised agent,
• ii) One of the several co-owners, who is in the sole possession of goods, with the consent
of other owners
• iii) A mercantile agent, who is in possession of the goods with the consent of real owner,
• iv) A person in possession under a voidable contract, before the contract is rescinded
• v) A seller, who is in possession of goods after sale or a buyer who has obtained
possession of the goods before sale
• vi) A person who has a limited interest in the property. Pledge is valid only to the extent
of such interest.
DISTINCTION BETWEEN PLEDGE AND
BAILMENT
• 1. Bailment is a contract where goods are entrusted upon by the bailor to the bailee for the
fulfilment of certain objective after which the good/s is returned to the owner.
Pledge is a peculiar kind of bailment in which the pawnor delivers his goods to pawnee as
security for a debt owed to that person or performance of a contract owned to that person.
• 2. There are two parties in bailment and pledge
• 3. Bailment is defined under section 148 of the Act.
• Pledge is defined under section 172 of the Act.
• 4. In the contract of bailment, consideration may be involved
• Involvement of consideration is important in Pledge
• 5. the bailee has no right to sell the good but has the duty to return it after the fulfilment of
the purpose.
Pawnee can sell the good as he has been given this right so that he can satisfy his debt
• 6. The main purpose of undertaking a bailment contract is for the main safekeeping of goods or for the
repair.
The main purpose of undertaking of Pledge contract is for ensuring security against the payment of the
debt.
• 7. Bailee can use the lien over the good/s but only for labour and service
• Pledgee also exercises the lien over the goods but for the non-payment of the interest.
RIGHTS OF PAWNEE
• 1. Right to retain the pledged goods [Section 173]
• 2. Right to the retention of subsequent debts [Section 174]
• 3. Pawnee’s right to extraordinary expenses Incurred [Section 175]
• 4. Pawnee’s right where pawnor makes default [ Section 176]
• 5. Right against the true owner of goods [Section 178 A]
DUTIES OF PAWNEE
• 1. To take reasonable care of the goods pledged
• 2. Not to make unauthorized use of goods pledged
RIGHTS AND DUTIES OF PAWNOR
• Rights
• 1. Right to redeem [Section 177]
• Pawnor may redeem the goods pledged at any subsequent time before their actual sale; but
he must, in that case, pay in addition, any expenses which have arisen from his default.
• Duties
• [Link] to reimburse ordinary and extraordinary expenses
• 2. Duty to repay the debt plus any interest due on debt
• 3. Duty to pay claims and damages or compensation to Pawnee
PLEDGE BY NON-OWNERS
• To facilitate mercantile transactions, the law has recognised certain exceptions
• 1) Pledge by a mercantile agent:
• Where a mercantile agent is, with the consent of . the owner, in possession of
goods or, the documents of title to goods, any pledge made by him, when
acting in the ordinary course of business of a mercantile agent, shall be valid,
provided that the pawnee acts in good faith and has, at the time of pledge, no
notice of the fact that the agent has no authority to pledge.
• 2) Pledge by person in possession under voidable contract:
• Section 178 A of the Contract Act provides that where goods are pledged
by a person who has obtained their possession under a voidable contract,
the pledge is valid, provided that the contract has not been rescinded at the
time of the pledge and the pledgee has acted in good faith and without
notice of the pledger's defect of title
• 3. Pledge where pledger has only a limited interest:
• For example, A finds a defective watch lying on the road. He
picks it up, gets it repaired and pays Rs. 50 for the repairs Later
on he pledges the watch for Rs. 25. The true owner can recover
the watch only on paying Rs. 50 to the pledgee.
• 4) Pledge by a co-owner in possession:
• Where the goods are owned by many persona and with the consent of
other owners, the goods are left in the possession of one of the co-owners.
Such a co-owner may make a valid pledge of the goods in his possession.
• 5. Pledge by seller or buyer in possession:
• A seller, in whose possession, the goods have been left after sale or a
buyer who with the consent of the seller, obtains possession of the goods,
before sale, can make a valid pledge, provided the pawnee acts in good
faith and he has no knowledge of the defect in title of the pawnor.
