PLEDGE 

Meaning

Pledge is a type of bailment where the bailor delivers his movable property to the bailee as security for a debt or other obligation owed by the bailor to the bailee. The bailor is known as the “pledgor,” and the bailee is known as the “pledgee.” Pledge is governed by the provisions of the Indian Contract Act, 1872.

In a pledge, the bailor retains the ownership of the pledged property, but the bailee has the right to possess the property until the debt or obligation is discharged. The pledged property serves as security for the debt or obligation, and the pledgor has the right to redeem the property upon payment of the debt or obligation.

For example, a person may pledge his jewelry to a pawnbroker in exchange for a loan. The pawnbroker has the right to possess the jewelry until the loan is repaid, and the pledgor has the right to redeem the jewelry by repaying the loan with interest.

Essentials of pledge

The essential elements of a pledge are:

1. Delivery of possession: The pledged property must be delivered to the pledgee, who has the right to possess the property until the debt or obligation is discharged.

2. Security for debt or obligation: The pledged property must serve as security for a debt or obligation owed by the pledgor to the pledgee.

3. Redemption: The pledgor has the right to redeem the property upon payment of the debt or obligation.

4. Right of sale: If the pledgor fails to redeem the property within the stipulated time, the pledgee has the right to sell the property and recover the debt or obligation from the sale proceeds.

Distinction between pledge and bailment

Pledge and bailment are two related legal concepts, but there are some important differences between them. Here are some of the key distinctions:

i) Purpose: The purpose of a pledge is to provide security for a debt or obligation, while the purpose of a bailment is to transfer possession of property for a specific purpose.

ii) Ownership: In a pledge, the pledgor retains ownership of the pledged property, while in a bailment, the bailor may or may not retain ownership of the bailed property.

iii) Transfer of possession: In a pledge, possession of the pledged property is transferred to the pledgee, while in a bailment, possession of the bailed property is transferred to the bailee.

iv) Right to use: In a pledge, the pledgee generally has no right to use the pledged property, while in a bailment, the bailee may have the right to use the bailed property for the specific purpose of the bailment.

v) Right to sell: In a pledge, the pledgee has the right to sell the pledged property if the pledgor fails to repay the debt or obligation, while in a bailment, the bailee generally has no right to sell the bailed property.

vi) Right to compensation: In a pledge, the pledgee is entitled to compensation for the use of the pledged property, while in a bailment, the bailee may or may not be entitled to compensation for the use of the bailed property, depending on the terms of the bailment agreement.

Rights and duties of the pawnee

The pawnee is the person who receives the pledged property in a pledge. As the bailee, the pawnee has certain rights and duties under the Indian Contract Act, 1872. Here are some of the rights and duties of the pawnee:

Rights of the Pawnee:

• Right of Possession: The pawnee has the right to possess the pledged property until the debt or obligation is discharged.
• Right of Retainer: The pawnee has the right to retain the pledged property until the debt or obligation is discharged.
• Right of Lien: The pawnee has a special right known as a “particular lien” over the pledged property, which allows him to retain the property until the debt or obligation is discharged.
• Right of Sale: If the pledgor fails to repay the debt or obligation, the pawnee has the right to sell the pledged property, after giving the pledgor reasonable notice of the sale.

Duties of the Pawnee:

• Duty of Care: The pawnee has a duty to take reasonable care of the pledged property and to return it to the pledgor in the same condition in which it was received, subject to normal wear and tear.
• Duty to Account: The pawnee has a duty to keep proper accounts of the pledged property and the proceeds of sale, if any, and to provide the pledgor with a statement of account upon request.
• Duty to Return: Upon repayment of the debt or obligation, the pawnee has a duty to return the pledged property to the pledgor.
• Duty to Give Notice: If the pledged property is at risk of damage or depreciation, the pawnee has a duty to give the pledgor notice and take appropriate measures to protect the property.

Rights and duties of the pawnor

Rights of the Pawnor:

1. Right of Redemption: The pawnor has the right to redeem the pledged property by paying off the debt or obligation within the agreed-upon time.
2. Right of Surplus: If the pledged property is sold by the pawnee, the pawnor has the right to receive any surplus proceeds after the debt or obligation has been discharged.
3. Right of Notice: The pawnor has the right to receive notice of the time and place of any intended sale of the pledged property.

Duties of the Pawnor:

1. Duty to Disclose: The pawnor has a duty to disclose any known defects or encumbrances in the pledged property.
2. Duty to Pay: The pawnor has a duty to pay off the debt or obligation within the agreed-upon time, in order to redeem the pledged property.
3. Duty of Punctual Payment: The pawnor has a duty to make payments towards the debt or obligation in a timely manner, as per the agreement.
4. Duty to Indemnify: The pawnor has a duty to indemnify the pawnee against any losses or damages incurred as a result of the pledge.