PLEDGE

Basic Inroduction : Pledge is a special kind of bailment, where delivery of goods is for purpose of security for payment of a debt or performance of a promise. Pledge is bailment for security. The object of the delivery of goods for a loan or for fulfillment of an obligation, only that kind of bailment will be Pledge.One of the common example is keeping gold with bank/money lender to obtain loan. Since pledge is bailment, all provisions applicable to bailment apply to pledge also. In addition, some specific provisions apply to pledge.1

Indian Contract Act, 1872 ( Section 172 to Section 179 ) draws out all the requisites for Pledge which may be understood as follows : o Definition of Pledge : 172. "Pledge" "pawnor",and "pawnee" defined.-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 the " pawnee". - For pledge there should be delivery of possession which may beactual or constructive. Delivery of the key of the godown where the goods are stored, is an illustration of Constructive delivery. o Rights of Pawnee : 173. Pawnee's right of retainer.-The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but 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. 174. Pawnee not to retain for debt or promise other than that for which goods pledged. Presumption in case of subsequent advances -The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee. The first important right of a Pwnee is the right to retain the goods pledged until his dues are paid. There shold be proper care take by the Pledgee towards the goods pledged and all the necessary expences incurred by him in respect of the possession or it should be for the prevention of the goods pledged.

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175 . Pawnee's right as to extraordinary expenses incurred - The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged. 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 promise, and retain the goods pledge as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor. Upon a default being made by the pawner in the payment of the debt or performance of the promise, the pledge gets into distinct rights under Section 176 of the act. Firstly, the pledge may sue upon the debt and retain the goods after reasonable notice of the intended sale to the pawner. The pledge may sell the goods, before making the sale he is required to give the pawner, a reasonable notice of his intention to sell. A notice which is required under this section should not be implied. Where the goods are lost due to the negligence of the pledge, the liability of the pledger is reduced to the extent of the value of such a goods.

o Pawners right to redeem : 177. Defaulting pawnor's right to redeem.-If a time is stipulated for the payment of the debt, of performance of the promise, for which the pledge is made,' and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them' ; but he must, in that case, pay, in addition, any expenses which have arisen from his default. o Questioning who can Pledge : Wriginally it should be with the consent of the Qwners Authority however temporary authority ( Possession of Servant ) cant be taken into consideration. Sec. 178 & 179 provides circumstances in which a person being left in possession with the consent of the owner, may make a valid pledge without owners authority. 178. Pledge by mercantile agent.-Where a mercantile 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 authorised 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. Explanation.-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. (3 of 1930). Possession under this section should be juridicial and should not be a mere physical possession. The last ingredient should be of goodfaith and the the definition which will gover it would be as per the definition as given as in General clauses Act, 1895 which says, a thing to be done in goodfaith when it is done honestly, whether negligently or not. 178A. Pledge by person in possession under voidable contract- When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor's defect of title. Where goods are pledged by a person who has obtained possession under a voidable contract, the pledge is valid, provided tthat the contract has been cancelled at the time of the pledge ane the pledge has acted in goodfaith and without notice of the pledgers defect of title. 179. Pledge where pawnor has only a limited interest.-Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest. Difference between Bailment and Pledge2 :

Purpose :- A pledge is made for a specific purpose, while bailment can be made for any purpose. Property :- In bailment, the bailee gets only the possession of goods bailed. The ownership remains with the bailor. In the case of pledge, the pledgee acquires a special property in the goods pledged whereby he gets possession coupled with the power of sale, on default. Right of sale :- Bailee can exercise a lien on the goods bailed. He has no right of sale. But in case of a pledge, the pledge can sell the goods after due notice to pawner.

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