PLEDGE
defenition
features
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”.
Since pledge is a special kind of bailment, therefore all the essentials of bailment are also
the essentials of the pledge. Apart from that, the other essentials of the pledge are:
Add on features :
• There shall be a bailment for security against payment or performance of the
promise,
• The subject matter of pledge is goods,
• Goods pledged for shall be in existence,
• There shall be the delivery of goods from pledger to pledgee
Rights of pawnee
• 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.
• The Pawnee can retain the goods pledged for any debt or promise other than the
debt or promise for which they are pledged. But he can exercise this right only when
there is a contract to this effect. i.e. a right to retain goods for subsequent debts can
be exercised only when it has been provided for in a contract to this effect.
• The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by
him for the preservation of the goods pledged.
• On default pawnor , pawnee may
i. the pawnee may bring a suit against the pawnor upon the debt or promise,
and retain the goods pledged as a collateral security; or
ii. he may sell the thing pledged on giving the pawnor reasonable notice of the
sale.
iii. If the proceeds of such sale are less than the amount due in respect of the debt
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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.
Rights of pawnor :
If a time is stipulated for the payment of the debt, or 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.
Pawnee du)es
a. Duty to take reasonable care of the pledged goods.
b. Duty not to make unauthorized use of pledged goods Duty not to mix
his own goods with goods pledged.
c. Duty not to do any act which is inconsistent with the terms of the
pledge.
d. Duty to return accretion to the goods, if any.
Pawnor du)es
a. The pawnor is liable to pay the debt or perform the promise as the
case may be.
b. It is the duty of the pawnor to compensate the
pawnee for any extraordinary expenses incurred by him
for preserving the goods pawned.
c. It is the duty of the pawnor to disclose all the faults
which may put the pawnee under extraordinary risks.
PLEDGE BY NON OWNER (same in Sale of goods Act )
• A mercantile agent, who is in the possession of goods or document of title, with the consent
of owner, can pledge them while acting in the ordinary course of business as a Mercantile
Agent.here Pawnee h a s t o acted in good faith and had no notice that Pawnor has
no authority to pledge.
• When the pawnor has obtained possession of the goods pledged by him under a contract
voidable under section 19 or section 19A (contracts where consent has been obtained
by fraud, coercion, misrepresentation, undue influence), but the contract has not been
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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.
• pawnor is not the absolute owner of goods, the pledge is valid to the extent of that
interest. Eg ‘A’ pledges his jewellery worth ` 1,00,000 with ‘B’ for a advance of ` 70,000. ‘B’
pledges the same for ` 90,000 with ‘C’. Now this pledge is valid upto ` 70,000 plus
interest due thereon.
• Where the goods are owned by many person and with the consent of other owners, the
goods are left in the possession of one of the co-owners. Such a co-owner may make a
valid pledge of the goods in his possession.( good faith)
• A seller, in whose possession, the goods have been left after sale or a buyer who with the
consent of the seller, obtains possession of the goods, before sale, can make a valid pledge
( pawnee in good faith)
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