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PLEDGE A pledge is a bailment of goods wherein the

goods are delivered as a security for payment of adebt or performance of a promise. The bailor in thiscase is called the ‘pawner’ or ‘pledgor’ and the baileeis called the ‘pawnee’ or ‘pledgee’

A pledge is a special kind of bailment wherein thepurpose of bailment is to provide security for paymentof a debt or performance of a promise.

Eg : A has taken a loan of Rs 2000 from B and has givena gold chain as security. A is said to have pledged thegold chain to B.

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• A pledge can be of movables and usuallyconsists of goods capable of actual or constructive delivery. In order to make thepledge usually valid it is essential that the

pledgor has a legal right or little to thegoods.

Ex: A delivers to B the documents of title of silver utensils belongings to him as a

security for a loan of Rs 1,00,000 . A issaid to have made a pledge.

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• ESSENTIAL FEATURES

1) Delivery of possession – Pawner must givepossession of the goods to the pawnee. Deliveryof possession may be actual or constructive.

2) In persuance of contract- The delivery of possession of goods must be in persuance of acontract i.e the pawner must give delivery of

possession of goods to the pawnee to provide asecurity for a loan or for the fulfillment of anobligation.

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• WHO CAN PLEDGE- Ordinarily goods may be

pledged by the owner or by any person with theowner’s authority. A pledge made by any other

person is not valid.

Pledge by merchantile agent- Merchantile agent

is an agent having the authority either to sellgoods or to buy goods or to raise money on the

security of the goods. A merchantile agent who

is in possession of goods or documents of title to

goods with the consent of the owner can pledge

the goods while acting in the ordinary course of

business.

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• Pledge by Pledgee – Where a pledgee further pledges

the goods the pledge will be valid only to the extent of his interest and his interest is the amount for which the

goods have been given to him as a security.

• Ex: A pledges a diamond ring to B to secure a sum of

Rs.10,000. B may further pledge the ring to C but only tosecure an amount upto Rs 10,000 because B’s interest

in the ring is limited to Rs. 10,000.

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• RIGHTS OF PLEDGEE

1. Right to retain the goods – Pledgee has the right to

retain the goods pledged for a) payment of the debt or performance of promise

b) interest due on the debt

c) all necessary expenses incurred by him in respectof possession and preservation of goods

But the pledgee cannot retain the goods in respect of adebt other than that for which the goods are pledged.

Eg: A has pledged a gold ornament with B for a loan of Rs

20,000. A owes to B Rs 5000 in another transaction. Bhas right to retain the ornament in respect of Rs20,000 only and not Rs 5000.

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2. Right to extra-ordinary expenses – The

pledgee is entitled to recover the extra-

ordinary expenses incurred by him for the

preservation of the goods pledged. The

pledgee cannot however retain the goods

for such expenses

3. Right to sue – If the pledgor defaults in

payment of debt or performance of promise, the pledgee has a right to sue the

pledgor.

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4. Right of sale – If the pledgor defaults in paymentof the debt, the pledgee has the right to sell thegoods after giving a reasonable notice of sale tothe pledgor.

If the sale proceeds fall short of the amountdue, the pledgor shall remain liable for thebalance. If the proceeds exceed the amountdue, the pledgee must return the surplus to thepledgor.

Eg : P gives a gold chain to Q to secure paymentof Rs 1000. P defaults. Q sells the chain for Rs5000. Q must return back Rs 4000 to P.

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RIGHTS OF PLEDGOR

1. Right of recovery – Pledgor has the rightto recover the goods on payment of the

debt or performance of the promise.

Eg:M takes a loan of Rs 1000 from N by

pledging silver utensils. After M repaysRs 1000, he can take back the utensils.

2. Right to redeem – Where the pledgor

defaults in making payment of the debt,

he may redeem the goods pledged at

any subsequent time before their sale.

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3. Right to increase – The pledgor has the

right to recover any increase or accretionto the goods during the period of pledge

Eg : Bonus shares issued on the shares

pledged during the period of pledge shallbelong to the pledgor

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