PLEDGE

By | April 23, 2017
Meaning and Introduction

A pledge is only a special kind of bailment, and chief basis of distinction is the object of the contract. Where the object of the delivery of goods is to provide a security for a loan or for the fulfilment of an obligation, that kind of bailment is pledge. Under Indian Contract Act, 1872 the ‘Pledge’ has been defined in section 172 as:

S 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”.

Rights of a Pawnee

1.      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.

2.      Right to extra ordinary expenses (Section 175) – As per section 175,  the pawnee is entitled to receive from the pawner 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.

3.       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.


Pledge made by non-owner of the goods

Ordinarily goods may be pledged by the owner or by any person with the consent of the owner. A pledge made by any other person is not valid. This is important to protect the interests of the owners. However, in many situations it is equally important to allow trade and commerces and so there are some situations where a person having the possession of the goods by owner’s consent, is entitled to pledge those goods even without owner’s consent for the pledge. These situations are discussed below – 

1.      Pledge by Mercantile agent (Section 178): When a mercantile agent is in possession of the goods with consent of the owner, any pledge made by him in ordinary course of business will be valid, provided that the pawnee acts in good faith and that he has no notice of the fact that the pawnor is not authorized to pawn the goods.
The essential conditions of this rule are – he must be a mercantile agent, he must have possession of the goods by consent of the owner, and it must be done in ordinary course of business. Further, the pawnee should act in good faith and he must not have notice that the pawnor has no authority to pledge.

2.      Pledge by a person in possession under voidable contract (Section 178 A):When the goods are obtained by a person under a contract that is voidable under section 19 or 19 A, he can pledge the goods if the contract is not avoided at the time of the pledge.

3.      Pledge by person with limited interest (Section 179): Section 179 says that where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.  

By – Shradha Arora
(Editor @ Legal Bites)
Mayank Shekhar
Author: Mayank Shekhar

Mayank is a student at Faculty of Law, Delhi University. Under his leadership, Legal Bites has been researching and developing resources through blogging, educational resources, competitions, and seminars.

What did I miss? Don't forget to leave your valuable feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.