PLEDGE

A pledge is a bailment of goods wherein the goods are delivered as a security for payment of a debt or performance of a promise. The bailor in this case is called the pawner or pledgor and the bailee is called the pawnee or pledgee A pledge is a special kind of bailment wherein the purpose of bailment is to provide security for payment of a debt or performance of a promise. Eg : A has taken a loan of Rs 2000 from B and has given a gold chain as security. A is said to have pledged the gold chain to B.

 A pledge can be of movables and usually consists of goods capable of actual or constructive delivery. In order to make the pledge usually valid it is essential that the pledgor has a legal right or little to the goods. Ex: A delivers to B the documents of title of silver utensils belongings to him as a security for a loan of Rs 1,00,000 . A is said to have made a pledge.

 ESSENTIAL FEATURES 1) Delivery of possession Pawner must give possession of the goods to the pawnee. Delivery of possession may be actual or constructive.

2) In persuance of contract- The delivery of possession of goods must be in persuance of a contract i.e the pawner must give delivery of possession of goods to the pawnee to provide a security for a loan or for the fulfillment of an obligation.

 WHO CAN PLEDGE- Ordinarily goods may be pledged by the owner or by any person with the owners authority. A pledge made by any other person is not valid. Pledge by merchantile agent- Merchantile agent is an agent having the authority either to sell goods or to buy goods or to raise money on the security of the goods. A merchantile agent who is in possession of goods or documents of title to goods with the consent of the owner can pledge the goods while acting in the ordinary course of business.

 Pledge by Pledgee Where a pledgee further pledges the goods the pledge will be valid only to the extent of his interest and his interest is the amount for which the goods have been given to him as a security. Ex: A pledges a diamond ring to B to secure a sum of Rs.10,000. B may further pledge the ring to C but only to secure an amount upto Rs 10,000 because Bs interest in the ring is limited to Rs. 10,000.

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RIGHTS OF PLEDGEE Right to retain the goods Pledgee has the right to retain the goods pledged for a) payment of the debt or performance of promise b) interest due on the debt c) all necessary expenses incurred by him in respect of possession and preservation of goods

But the pledgee cannot retain the goods in respect of a debt other than that for which the goods are pledged. Eg: A has pledged a gold ornament with B for a loan of Rs 20,000. A owes to B Rs 5000 in another transaction. B has right to retain the ornament in respect of Rs 20,000 only and not Rs 5000.

2. Right to extra-ordinary expenses The pledgee is entitled to recover the extraordinary expenses incurred by him for the preservation of the goods pledged. The pledgee cannot however retain the goods for such expenses
3. Right to sue If the pledgor defaults in payment of debt or performance of promise, the pledgee has a right to sue the pledgor.

4. Right of sale If the pledgor defaults in payment of the debt, the pledgee has the right to sell the goods after giving a reasonable notice of sale to the pledgor. If the sale proceeds fall short of the amount due, the pledgor shall remain liable for the balance. If the proceeds exceed the amount due, the pledgee must return the surplus to the pledgor. Eg : P gives a gold chain to Q to secure payment of Rs 1000. P defaults. Q sells the chain for Rs 5000. Q must return back Rs 4000 to P.

RIGHTS OF PLEDGOR 1. Right of recovery Pledgor has the right to recover the goods on payment of the debt or performance of the promise. Eg:M takes a loan of Rs 1000 from N by pledging silver utensils. After M repays Rs 1000, he can take back the utensils.
2. Right to redeem Where the pledgor defaults in making payment of the debt, he may redeem the goods pledged at any subsequent time before their sale.

3. Right to increase The pledgor has the right to recover any increase or accretion to the goods during the period of pledge Eg : Bonus shares issued on the shares pledged during the period of pledge shall belong to the pledgor