Pledge

Pledge [S.172]

Definition- “the bailment of goods as security for payment

of a debt or performance of a promise is called pledge”.

Ex: when the debtor takes the loan from the creditor and

keeps the goods as security, then that is called Pledge.

It is a special kind of Bailment. So, all essentials of bailment

to apply.

1. Two Parties- Pawnor and Pawnee

2. Delivery of goods

3. For some purpose i.e security of loan or performance of

promise

4. Upon a Contract

5. To be returned, when loan paid off.

Here, also will be two parties like in the bailment.

1.“Pawnor”- The bailor in case of a pledge is called as pawnor

or pledger.

It means the person who delivers the goods as security for

payment of a debt or performance of a promise is called the

pawnor.

2. “Pawnee”- The bailee in case of a pledge is called as

pawnee or pledgee. It means the person to whom the goods

are delivered as security for payment of a debt or

performance of a promise is called the pawnee.

Examples and Case Law

1. A borrows Rs. 50,000 from B and keeps his some jewellery

as security for payment of the debt, the bailment of jewellery

is a pledge and A is the pawnor and B is the pawnee.

2. A borrows Rs. One lakh from bank and keeps his car as

security for payment of the debt, the bailment of car is pledge

and A is the pawnor and bank is the pawnee.

Case Law: Revenue Authority v. Sudarshan Pictures- A

film-producer borrowed Rs 1 crore from a financier-

distributor and agreed to deliver the final prints of the film

when ready. This agreement was not a pledge because there

was no actual transfer of possession of goods as security.

Rights of Pawnee

1. Right of Lien (S. 173)- The Pawnee has the right to retain the goods

pledged with him until he is paid-

i) money due under the pledge;

ii) interest on debt not paid; and

iii) necessary expenses for preservation of goods.

2. Right of retainer for subsequent advances (S. 174)- There is a

presumption that if there are subsequent advances by the pawnee to the

pawnor, then, they are also considered to be the part of the original debt

and therefore, the pawnee has a right to retain the right to retain the goods

for non-payment of the subsequent advances.

3. Right to extraordinary expenses (S. 175)- The pawnee has the right to

recover extraordinary expenses incurred by him for the preservation of

the goods pledged. However, he has no right to retain the goods in case of

non-payment of extraordinary expenses: he can only sue to recover them.

4. Pawnee’s right where pawnor makes default (S. 176)-

Where the pawnor fails to redeem his pledge, the pawnee can

exercise, the pawnee can exercise the following rights:

i) he may file a suit against the pawnor upon the

debt or promise and may retain the goods pledged

as a collateral security.

ii) he may sell the goods pledged, after giving the

pawnor a reasonable notice of the sale.

iii) he can recover from the pawnor any deficiency

arising on the sale of the goods by him.

Duties of Pawnee

1. Take reasonable care- The pawnee must take care of goodspledged as a man of ordinary prudence would take care of hisown goods.

2. Not to use the goods- The pawnee has no right to use thegoods. However, he may use the goods, if he has been soauthorised by the pawnor.

3. Not to mix goods- The pawnee must not mix his own goodswith the goods pledged.

4. Return the goods- The pawnee must return the goods, if thepawnor pays the debt or performs his promise.

5. Return increase in goods- The pawnee must return to thepawnor any accretion to the goods pledged with him.

Rights of Pawnor

1. Right to get back goods- The pawnor has a right to get back

his goods pledged on the performance of the promise or

repayment of loan and interest, if any.

2. Preservation and maintenance of goods- The pawnor has a

right to see that the pawnee like bailee, preserves the goods

pledged and properly maintains them.

3. Right increase in goods- The pawnor has the right to

recover from pawnee any increase in goods pledged.

4. Right of Redemption- It is said that “once a pledge, always a

pledge”. The debtor has right to redeem the pledge anytime.

There is no time limit. Loan time expired. Thereafter also, the

Pawnor has a right to redeem the pledge. This is right of

Redemption of Pawnor and cannot be taken away by contract.

The only limitation of time- i.e goods not sold by pawnee after

giving reasonable notice. If goods sold then right of

redemption is no more.

He must pay expenses which have arisen from his default.

The Theory of Redemption is not applicable in Bailment.

Duties of Pawnor

1. Pay the debt- The pawnor is liable to pay the debt or

perform the promise.

2. Pay extra-ordinary expenses- The pawnor is liable to pay to

the pawnee any extraordinary expenses incurred by the

pawnee for preservation of goods.

3. Disclose faults in goods- The pawnor is liable to disclose all

the faults which-

a) are material for use of the goods; or

b) may put the pawnee to extraordinary risks.

4. Indemnify the pawnee- The pawnor must indemnify the

pawnee, if loss is caused to the pawnee due to defect in

pawnor’s title to the goods.

Difference between:

Bailment [S.148]

1. Bailment is the delivery of goods

by one person to another for

some purpose, upon a contract,

that they shall, when the purpose

is accomplished, be returned or

otherwise disposed of according

to the directions of the person

delivering them.

2. There are two parties known as

Bailor and Bailee.

Pledge [S.172]

1. Pledge is the bailment of goods as

a security for payment of debt or

performance of a promise is called

pledge.

2. There are also two parties known

as Pawnor and Pawnee.

Bailment

4. Ex: Delivery of car by one person to

another for repairing

5. Bailment is for a purpose of any

kind.

6. The bailee may use the goods, if the

terms of the contract so provide.

7. In case of default by the bailor, the

bailee may either retain the goods

or sue for his charges but can’t sell.

8. Bailment does not amount to pledge.

Pledge

4. Ex: Security of goods by oneperson to another for payment ofthe debt.

5. Pledge is bailment of goods for aspecific purpose i.e repayment ofa debt.

6. The Pawnee has no right to use thegoods pledged with him.

7. In case of default by the pawnor torepay the debt, the pawnee, may,after giving notice to the pawnor,sell the goods pledged with him.

8. Every pledge involves bailment.

THANKS!