Pledge

A type of special Contract

By Jinesh A Shah

Meaning
A pledge is a bailment that conveys possessory title
to property owned by a debtor (the pledgor) to a
creditor (the pledgee) to secure repayment for some
debt or obligation and to the mutual benefit of both
parties

By Jinesh A Shah

Essential Elements of a pledge

Delivery of possession - As in bailment, the

delivery of possession is essential in a pledge.

It is possible to do delivery by compensation in which
case a third person who has the possession of the property
agrees to hold it on behalf of the agent upon direction of
the owner.
In return of a loan or a promise - The delivery must be
in return of a loan or of acceptance of a promise to
perform something. Thus, if A gives his bicycle to B in
friendship, it is not a pledge but a simple bailment
By Jinesh A Shah

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In pursuance of a contract - The delivery must be done

under a contract though it is not necessary that the

delivery and the payment of loan be at the same time.
Delivery can be made even after the loan is received.

By Jinesh A Shah

Rights of a Pawnee (Agent)

Right of retainer (Section 173- 174) - As per section 173, the
pawnee may retain the goods pledged, not only for a payment of a debt
or the performance of the promise, but also for the interest of the debt,
and all necessary expenses incurred by him in respect of the possession
or for the preservation of the goods pledged. Further, as per section
174, in absence of any contract to the contrary, the pawner shall not
retain the goods pledged for debt or promise other than the debt or
promise for which they have been pledged. However, such contract
shall be presumed in absence of any contract to the contrary with
respect to any subsequent advances made by the
pawnee.
By Jinesh
A Shah

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Right to extra ordinary expenses (Section 175) - As per section
175, the Pawnee is entitled to receive from the pawnor extra ordinary
expenses incurred by him for the preservation of the goods pledged.
For such expenses, however, he does not have right to detain the
goods. Section 175 says that the pawnee is entitled to receive from
the pawner extraordinary expenses incurred by him for the
preservation of the goods pledged.

By Jinesh A Shah

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Right of sale (Section 176) - As per section 176 (Pawnee's

right where pawnor makes default) - If the pawnor makes

default in payment of the debt or performance at the stipulated
time, of the promise, in respect of which the goods were
pledged, the pawnee may bring a suit against the pawnor upon
the debt or the promise and retain the goods pledged as a
collateral security; or he may sell the thing pledged, on giving
the pawnor reasonable notice of the sale.
By Jinesh A Shah

Pledge by mercantile agent

Where a mercantile (commercial) agent is, with the consent of the

owner, in possession of goods or the document of title to goods, any

pledge made by him, when acting in the ordinary course of business of
a mercantile agent, shall be as valid as if he were expressly authorized
by the owner of the goods to make the same; provided that the pawnee
acts in good faith and has not at the time of the pledge notice that the
pawnor has not authority to pledge.
In this section, the expressions mercantile agent and documents of

title shall have the meanings assigned to them in the Indian Sale of
Goods Act, 1930

By Jinesh A Shah

Difference between Bailment and Pledge

Bailment

Pledge

Bailment can be for many reasons

range for reward to unjustified.

The bailee does not get a right to sell A pledge is bailment done for a specific
the goods
type of purpose, which is to secure a loan
or performance of a promise.
The bailee only get a right of lien
A pawnee has a right to sell the goods in
over the goods.
case of default.
A pawnee gets a right of retainer and a
The bailee can use the goods bailed.
special interest in the goods, which is
more that just the lien
The bailee is not responsible for the The pawnee has no right to use the goods.
loss, destruction, or deterioration if he The pawnee is absolutely liable for the
uses the goods with reasonable care
upkeep ofBythe
goods.
Jinesh
A Shah