Pledge

Pledge
Pledge [S.172]
 Definition- “the bailment of goods as security for payment
of a debt or performance of a promise is called pledge”.
 Ex: when the debtor takes the loan from the creditor and
keeps the goods as security, then that is called Pledge.
 It is a special kind of Bailment. So, all essentials of bailment
to apply.
1. Two Parties- Pawnor and Pawnee
2. Delivery of goods
3. For some purpose i.e security of loan or performance of
promise
4. Upon a Contract
5. To be returned, when loan paid off.
 Here, also will be two parties like in the bailment.
1.“Pawnor”- The bailor in case of a pledge is called as pawnor
or pledger.
It means the person who delivers the goods as security for
payment of a debt or performance of a promise is called the
pawnor.
2. “Pawnee”- The bailee in case of a pledge is called as
pawnee or pledgee. It means the person to whom the goods
are delivered as security for payment of a debt or
performance of a promise is called the pawnee.
Examples and Case Law
1. A borrows Rs. 50,000 from B and keeps his some jewellery

as security for payment of the debt, the bailment of jewellery
is a pledge and A is the pawnor and B is the pawnee.
2. A borrows Rs. One lakh from bank and keeps his car as
security for payment of the debt, the bailment of car is pledge
and A is the pawnor and bank is the pawnee.
Case Law: Revenue Authority v. Sudarshan Pictures- A
film-producer borrowed Rs 1 crore from a financier-
distributor and agreed to deliver the final prints of the film
when ready. This agreement was not a pledge because there
was no actual transfer of possession of goods as security.
Rights of Pawnee
1. Right of Lien (S. 173)- The Pawnee has the right to retain the goods
pledged with him until he is paid-
i) money due under the pledge;
ii) interest on debt not paid; and
iii) necessary expenses for preservation of goods.
2. Right of retainer for subsequent advances (S. 174)- There is a
presumption that if there are subsequent advances by the pawnee to the
pawnor, then, they are also considered to be the part of the original debt
and therefore, the pawnee has a right to retain the right to retain the goods
for non-payment of the subsequent advances.
3. Right to extraordinary expenses (S. 175)- The pawnee has the right to
recover extraordinary expenses incurred by him for the preservation of
the goods pledged. However, he has no right to retain the goods in case of
non-payment of extraordinary expenses: he can only sue to recover them.
4. Pawnee’s right where pawnor makes default (S. 176)-
Where the pawnor fails to redeem his pledge, the pawnee can
exercise, the pawnee can exercise the following rights:
i) he may file a suit against the pawnor upon the
debt or promise and may retain the goods pledged
as a collateral security.
ii) he may sell the goods pledged, after giving the
pawnor a reasonable notice of the sale.
iii) he can recover from the pawnor any deficiency
arising on the sale of the goods by him.
Duties of Pawnee
1. Take reasonable care- The pawnee must take care of goods
pledged as a man of ordinary prudence would take care of his
own goods.
2. Not to use the goods- The pawnee has no right to use the
goods. However, he may use the goods, if he has been so
authorised by the pawnor.
3. Not to mix goods- The pawnee must not mix his own goods
with the goods pledged.
4. Return the goods- The pawnee must return the goods, if the
pawnor pays the debt or performs his promise.
5. Return increase in goods- The pawnee must return to the
pawnor any accretion to the goods pledged with him.
Rights of Pawnor
1. Right to get back goods- The pawnor has a right to get back
his goods pledged on the performance of the promise or
repayment of loan and interest, if any.
2. Preservation and maintenance of goods- The pawnor has a
right to see that the pawnee like bailee, preserves the goods
pledged and properly maintains them.
3. Right increase in goods- The pawnor has the right to
recover from pawnee any increase in goods pledged.
4. Right of Redemption- It is said that “once a pledge, always a
pledge”. The debtor has right to redeem the pledge anytime.
There is no time limit. Loan time expired. Thereafter also, the
Pawnor has a right to redeem the pledge. This is right of
Redemption of Pawnor and cannot be taken away by contract.
The only limitation of time- i.e goods not sold by pawnee after
giving reasonable notice. If goods sold then right of
redemption is no more.
He must pay expenses which have arisen from his default.
The Theory of Redemption is not applicable in Bailment.
Duties of Pawnor
1. Pay the debt- The pawnor is liable to pay the debt or

perform the promise.
2. Pay extra-ordinary expenses- The pawnor is liable to pay to
the pawnee any extraordinary expenses incurred by the
pawnee for preservation of goods.
3. Disclose faults in goods- The pawnor is liable to disclose all
the faults which-
a) are material for use of the goods; or
b) may put the pawnee to extraordinary risks.
4. Indemnify the pawnee- The pawnor must indemnify the
pawnee, if loss is caused to the pawnee due to defect in
pawnor’s title to the goods.
Difference between:
Bailment [S.148] Pledge [S.172]
1. Bailment is the delivery of goods 1. Pledge is the bailment of goods as

by one person to another for a security for payment of debt or
some purpose, upon a contract, performance of a promise is called
that they shall, when the purpose pledge.
is accomplished, be returned or
otherwise disposed of according
to the directions of the person
delivering them.
2. There are two parties known as 2. There are also two parties known
Bailor and Bailee. as Pawnor and Pawnee.
Bailment Pledge
4. Ex: Delivery of car by one person to 4. Ex: Security of goods by one
another for repairing person to another for payment of
5. Bailment is for a purpose of any the debt.
kind. 5. Pledge is bailment of goods for a
specific purpose i.e repayment of
6. The bailee may use the goods, if the
a debt.
terms of the contract so provide.
6. The Pawnee has no right to use the
7. In case of default by the bailor, the goods pledged with him.
bailee may either retain the goods
7. In case of default by the pawnor to
or sue for his charges but can’t sell.
repay the debt, the pawnee, may,
after giving notice to the pawnor,
8. Bailment does not amount to pledge. sell the goods pledged with him.
8. Every pledge involves bailment.
THANKS!

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Pledge

1. A borrows Rs. 50,000 from B and keeps his some jewellery

1. Pay the debt- The pawnor is liable to pay the debt or

Bailment [S.148] Pledge [S.172]

1. Bailment is the delivery of goods 1. Pledge is the bailment of goods as

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