Contract of Pledge

 Pledge

Pledge is a kind of bailment. Pledge is also known as Pawn. It is defined under section 172 of the Indian Contract Act, 1892. By pledge, we mean bailment of goods as a security for the repayment of debt or loan advanced or performance of an obligation or promise. The person who pledges the goods as security is known as Pledger or Pawnor and the person in whose favor the goods are pledged is known as Pledgee or Pawnee.

Essentials of Pledge

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:

·        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,

·        There is no transfer of ownership in case of the pledge.

 Rights Of The Pawnee Under Contract Of Pledge

1. Right to retain- until and unless the loan has been repaid or the obligation has been performed, the pawnee has the right to retain the goods. a pawnee can retain the goods for-

a) payment of the debt or performance of the promise,

b) interests on the debt,

c) all other expenses incurred by him in respect of the pledged goods

2.  Right to retain for subsequent advances- section 174 provides that the pawnee is not entitled to retain the goods for debt or promise other than that for which goods for pledged for.[16] However it is presumed that the pawnee has the right, if he makes subsequent advances to the pawnor, to retain the goods unless it is otherwise provided in the contract. Thus it is the terms of the contracts which decides the rights of the pawnee in this case.

 3. Right to extraordinary expenses-

The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

In other words it can be said that his lien over the pledged goods does not extend to cover the rights of extraordinary expenses. Thus what the pledgee has is the right of action for recovering these expenses.

4. Pledgees rights in case of default- On the failure to make repayment to Pawnee of the debt, the Pawnee has two right: either to initiate suit proceedings against him or sell the goods

Rights of Pawnor

As per Section 177 of the Indian Contract Act, 1872 the Pawnor has the Right to Redeem. By this, we mean that on the repayment of the debt or the performance of the promise, the Pawnor can redeem the goods or property pledged from the Pawnee before the Pawnee makes the actual sale. The right of redemption is extinguished once the actual sale is done by the Pawnee as per his right 

 Difference between Bailment and Pledge

Basis	Bailment	Pledge
Meaning	Transfer of goods from one person to another for a specific purpose is known as the bailment.	Transfer of goods from one person to another as security for repayment of debt is known as the pledge.
Defined In	It is defined under section 148 of the Indian Contract Act, 1872.	It is defined under section 172 of the Indian Contract Act, 1872.
Parties	The person who delivers the bailed goods are known as Bailor and the person receiving such goods are known as Bailee.	The person who delivers the pledged goods is known as Pledger or Pawnor and the person receiving such goods is known as Pledgee or Pawnee.
Consideration	The consideration may or may not be present.	Consideration is always there.
Right to Sell	Bailee has no right to sell the goods bailed.	Pledgee or Pawnee has the right to sell the goods.
Use of Goods	Bailee can use the goods only for a specific purpose only and not otherwise.	Pledgee or Pawnee cannot use the goods pledged.
Purpose	The purpose of bailed goods is for safekeeping or repairs etc.	The purpose of pledged goods is to act as security for repayment of debt or performance of the promise.